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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

     (Mark One)
     [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
         EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001
                                       OR
     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES AND EXCHANGE ACT OF 1934
         For the transition period from_________ to _________

                         Commission file number 0-28706
                                                --------

                           FIRST ALLIANCE CORPORATION
             (Exact name of registrant as specified in its charter)

          DELAWARE                                    33-0721183
          --------                                    ----------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

     17305 VON KARMAN AVENUE, IRVINE, CALIFORNIA             92614
     -------------------------------------------             -----
         (Address of principal executive offices)          (zip code)

       Registrant's telephone number, including area code: (949) 224-8500

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

      TITLE OF EACH CLASS              NAME OF EACH EXCHANGE ON WHICH REGISTERED
      -------------------              -----------------------------------------
Common Stock, $0.01 par value                        Not Applicable*

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [ ]

     As of March 28, 2002, the aggregate market value of voting stock held by
non-affiliates of the registrant was approximately $179,000.

          APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                        DURING THE PRECEDING FIVE YEARS

     Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities and
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [X]

     As of March 28, 2002, the registrant had outstanding, net of treasury
shares, 17,864,788 shares of common stock (the "Common Stock").

     * The Company's stock is currently quoted on the NASD's electronic bulletin
board under the symbol "FACOQ."
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                                     PART I


FORWARD LOOKING STATEMENTS

     Certain statements in this Annual Report on Form 10-K are "forward looking
statements" within the meaning of the Private Securities Litigation Report of
1995. You can identify forward looking statements by the use of such words as
"expect," "estimate," "intend," "project," "budget," "forecast," "anticipate,"
"plan," "in the process of," and similar expressions. Forward looking statements
include all statements regarding First Alliance Corporation's ("FACO"), together
with its subsidiaries, expected financial position, results of operations, cash
flows, financing plans, business strategies, budgets, capital and other
expenditures, competitive positions, plans and objectives of management and
markets for the Company's Common Stock. All forward looking statements involve
risks and uncertainties. In particular, any statements contained herein
regarding expectations with respect to future sales, resolution of regulatory
actions and other litigation, including the Company's Chapter 11 Bankruptcy
Filing (described in more detail below), operating efficiencies and product
expansion, are subject to known and unknown risks, uncertainties and
contingencies, many of which are beyond the control of the Company, which may
cause actual results, performance or achievements to differ materially from
anticipated results, performance or achievements, including, but not limited to,
those factors discussed under "Risk Factors." Factors that might affect such
forward looking statements include, among other things, overall economic and
business conditions, various rulings of the Bankruptcy Court in the Company's
Chapter 11 proceeding and in other material litigation where the Company is
involved, changes in government regulation, future regulatory actions and
litigation, reduction in real estate values, reduced demand for non-conforming
loans, changes in underwriting criteria applicable to such loans, prepayment
speeds, delinquency and default rates of mortgage loans owned or serviced by the
Company, rapid fluctuation in interest rates, risks related to not hedging
against loss of value of the Company's mortgage loan inventory, changes which
influence the loan securitization and the net interest margin securities (excess
cash flow trust) markets generally, market forces affecting the price of the
Company's Common Stock and other uncertainties associated with the Company's
current financial difficulties and other risks identified in the Company's
Securities and Exchange Commission filings.


ITEM 1.  BUSINESS

GENERAL

     The Company was a financial services organization principally engaged in
mortgage loan origination, purchases, sales and servicing. Loans originated by
the Company primarily consisted of fixed and adjustable rate loans secured by
first mortgages on single family residences. The majority of the Company's loans
have been made to borrowers who used the loan proceeds for such purposes as debt
consolidation and financing of home improvements. Typically, the Company's
borrowers have been individuals who did not qualify for conventional loans
because of impaired or unsubstantiated credit characteristics and/or
unverifiable income, and whose borrowing needs were not met by conventional
lending institutions. Other borrowers have included individuals who may have
qualified for a conventional loan but found the Company's loans attractive due
to the Company's personalized service and rapid funding capability.


BANKRUPTCY

     On March 23, 2000, FACO, along with several of its subsidiaries, filed
voluntary petitions under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Filing") in the United States Bankruptcy Court for the Central
District of California. As of the date of the Company's voluntary bankruptcy
petition, the United States Bankruptcy Court for the Central District of
California assumed jurisdiction over the assets of the Company. As a debtor in
possession, the Company remains in control of its assets and is authorized to
operate its business, subject to the supervision of the Bankruptcy Court. The
Company's filing is expected to facilitate the reorganization, marketing, sale
and liquidation of the Company's remaining business and assets. The Company has
laid off over 400 employees, ceased all loan origination and branch operations,
and therefore, has no operating loan origination business. The affected offices
were located in California, New York, New Jersey, Illinois, Arizona, Colorado,

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Maryland, Oregon, Utah and Washington. The Company's decision to file bankruptcy
was primarily due to legislative proposals limiting revenue generating capacity
and increased litigation from private attorneys and state and federal agencies.
For financial statement presentation only, March 31, 2000 will be considered the
effective date of the Bankruptcy Filing.

     Since the Bankruptcy Filing, the Company has been principally engaged in
dealing with bankruptcy-related matters, and, together with its outside
advisors, formulating a substantially modified business strategy in an effort to
expeditiously formulate, confirm and consummate a plan to sell and market the
Company's business units and related assets. The Company, which at its peak
employed over 450 people, had approximately 14 full-time employees housed at its
corporate headquarter in Irvine, California as of December 31, 2001. The primary
function of the remaining staff is to assist the Company in facilitating the
sale of the Company's remaining assets and settlement of its related
liabilities.

     In connection with the Bankruptcy Filing, it is management's intention to
market for sale and operate pending such sale all or a significant portion of
the Company's remaining assets. Proceeds from the sale of assets that are
security for the Company's obligations to its secured creditors will first be
used to repay such secured creditors, which include the Company's warehouse
financing facility and a note payable related to the financing of the Company's
telemarketing facility in Irvine, California. Any proceeds available after the
satisfaction of the secured obligations from the sale of such creditors'
collateral, and proceeds from the sale of the Company's free and clear assets
will be utilized to repay unsecured creditors with allowed claims. There can be
no assurance, however, that the Company will be successful in selling the assets
at a value which will allow the Company to fulfill all of its debt obligations
or result in a liquidation distribution to its shareholders. All repayments
mentioned above will be in accordance with United States Bankruptcy law,
pursuant to appropriate orders of the United States Bankruptcy Court (see "Risk
Factors"). Further, the Company has recently entered into a proposed settlement
of most of its outstanding litigation (see "Proposed Settlement").

     Management, based upon the advice of its outside bankruptcy counsel,
believes that the overall reorganization/liquidation plan will take
approximately 12 months from December 31, 2001, subject to change depending on
the outcome of certain litigation proceedings. No assurance, however, can be
given that the Company will be able to complete its reorganization/liquidation
plan within the time expected (see "Risk Factors").


PROPOSED SETTLEMENT

     As of February 25, 2002, the Company and its subsidiaries, and the Federal
Trade Commission ("FTC"), the Attorneys General of Arizona, California, Florida,
Illinois, and Massachusetts, the New York State Banking Department, and the
various Plaintiffs in the borrower related litigation reached a Proposed
Settlement ("Settlement") of most of the outstanding litigation. The terms of
the Settlement are summarized below. The actual settlement documents are posted
on the website of the FTC, and can be found at
WWW.FTC.GOV/OPA/2002/03/FAMCO.HTM. The Settlement is conditioned on a number of
events, including, without limitation, various approvals and Court orders. The
Commissioners of the FTC approved the terms of the Settlement on March 15, 2002.

     In brief, the Settlement provides for a "Redress Fund" to be established
under the control of the FTC. The FTC would then administer a claims process for
the payment of borrower claims.

     The Redress Fund is to be comprised of the assets of the Company, less
necessary amounts to pay: (1) present and future anticipated administrative
expenses, (2) general unsecured creditors, in a percentage of their claims to be
determined as part of the process of confirming a Bankruptcy Plan, and (3)
present and future anticipated Professional and Employee claims in connection
with the Settlement. Brian and Sarah Chisick have agreed to (i) contribute the
sum of $20 million to the Company to be part of the Redress Fund, (ii) purchase
the Company's residual interests for the amount of $25.1 million, the stated
value of the residual interests on the Company's financial statements as of
December 31, 2001, and (iii) be enjoined from engaging in any residential loan
origination business, and have agreed to other restrictions.

     Certain insurers for the Company and others with whom it did business are
contributing additional sums to the Redress Fund, and the terms of the
Settlement shall be the basis for a liquidating Chapter 11 Plan (the "Amended
Plan") and a Court approved settlement of the FTC, State, and various borrower
class actions.

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     As to the Company's shareholders, the Settlement proposes, in pertinent
part, that the Company would cancel all issued and outstanding shares of the
Company's common stock ("FACO Shares") upon the effective date of the Amended
Plan. After the effective date of the Settlement, a payment would be made from
the Redress Fund to those persons who held FACO Shares on the effective date.
FACO shareholders would be paid the lesser of $1.50 per share or the
shareholder's purchase basis of such shares prior to cancellation, provided that
the total amount of such payments to all shareholders does not exceed
$3,250,000.00. Any FACO shares traded after February 25, 2002, would be presumed
to have a purchase basis not to exceed $.09. If the total amount of such
payments would exceed $3.25 million, the payment to each former shareholder of
the Company would be reduced on an equal proportionate basis until the total
payments do not exceed $3.25 million. Certain shareholders, including Brian and
Sarah Chisick, would waive any payment for FACO shares they hold.

     The effectiveness of the Settlement is conditioned on a number of events
which have not occurred, including, but not limited to, the approval of the
United States District Court for the Central District of California of the
Settlement, the Amended Plan, and other matters. In addition, there can be no
assurance that the Settlement or Amended Plan will be approved at all, or in the
proposed form.


POST-BANKRUPTCY BUSINESS OPERATIONS

     On March 23, 2000, First Alliance Corporation and several subsidiaries,
including First Alliance Mortgage Company, filed voluntary petitions for relief
under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court
for the Central District of California, Santa Ana, California. Under Section 362
of the Bankruptcy Code, during the Chapter 11 Case, creditors and other parties
in interest may not, without Bankruptcy Court approval: (i) commence or continue
judicial, administrative or other proceedings against the Company that were or
could have been commenced prior to commencement of the Chapter 11 Case, or
recover a claim that arose prior to commencement of the case; (ii) enforce any
pre-petition judgments against the Company; (iii) take any action to obtain
possession of or exercise control over property of the Company or its estate;
(iv) create, perfect or enforce any lien against the property of the Company;
(v) collect, assess or recover claims against the Company that arose before the
commencement of the case; or (vi) set off any debt owing to the Company that
arose prior to the commencement of the case against a claim of such creditor or
party in interest against the Company that arose before the commencement of the
case. Although the Company is authorized to operate its business and manage its
properties as a debtor-in-possession, it may not engage in transactions outside
of the ordinary course of business without complying with the notice and hearing
provisions of the Bankruptcy Code and obtaining Bankruptcy Court approval.

     As a debtor-in-possession, the Company has the right, subject to Bankruptcy
Court approval and certain other limitations, to assume or reject executory,
pre-petition contracts and unexpired leases. Any damages resulting from
rejection are treated as general unsecured claims in the reorganization case,
subject to certain limitations under the Bankruptcy Code. Under the Bankruptcy
Code, as a general matter, a creditor's claim is treated as secured only to the
extent of the value of such creditor's collateral, and the balance of such
creditor's claim is treated as unsecured. Generally, unsecured and undersecured
debt does not accrue interest after the Petition Date. Pre-petition claims that
were contingent or unliquidated at the commencement of the Chapter 11 Case are
generally allowable against the Company in amounts to be fixed by the Bankruptcy
Court or otherwise agreed upon. The Company has established reserves for certain
claims that, at this point, the Company has determined to be probably valid.
Under the Bankruptcy Code, the rights and treatment of pre-petition creditors
and stockholders may be substantially altered. At this time, it is not possible
to predict the outcome of the Chapter 11 Case, in general, or the effects of the
Chapter 11 Case on the business of the Company or on the interests of creditors
or shareholders.

     The Office of the United States Trustee has appointed an Official Committee
of Unsecured Creditors, as well as an Official Joint Borrowers Committee. The
Official Committee of Unsecured Creditors is a group of creditors that is
charged with representing the rights of the unsecured creditors of the Estate,


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other than consumer borrowers, and is generally required by 11 U.S.C. ss.1102.
The United States Trustee determined that, based upon the facts of the Company's
proceeding, an additional committee was advisable, and appointed the Official
Joint Borrowers Committee to represent the interests of the various consumer
borrowers from the Company and its subsidiaries, one source of substantial
claims.

     The Company's revenue has historically been comprised of three primary
components, consisting of loan origination and sale, loan servicing and other
fees, and interest income. The Bankruptcy Filing resulted in the Company closing
its loan origination and retail branch operations. In addition, in July 2000,
the Company sold the majority of its servicing rights portfolio. The Company's
current business operation has now been reduced to servicing approximately $36.1
million of its wholly-owned loans as of December 31, 2001. The Company's current
sources of cash include servicing income from its remaining servicing business,
proceeds from liquidation of assets and interest income from residual interests,
loans held for sale and interest earned on outstanding cash balances. Other than
proceeds from the sale of assets, the Company expects servicing and interest
income to be its only source of revenue.

     The Company's uses of cash include payments to creditors, payments of
interest, repayment of its warehouse financing facilities, administrative
expenses, and payment of income taxes. All such payments are on a post petition
basis only or unless otherwise approved by the Bankruptcy Court. As a result of
the Bankruptcy Filing, the closure of the Company's loan origination operations
and the servicing rights portfolio sale, the Company has lost a significant
source of cash flow. As of December 31, 2001, the Company had unrestricted cash
and cash equivalents of $35.3 million.

     In December 2000, the Company terminated a lease with a partnership
beneficially owned by Brian and Sarah Chisick, the Company's principal
stockholders, relating to its 40,000 square foot corporate headquarters located
at 17305 Von Karman Avenue, Irvine, California. The Company did not incur any
termination penalty related to such lease. Also during December, the Company
entered into a one-year sublease arrangement commencing on January 1, 2001 to
occupy 4,000 square feet of such building with an unrelated third party. This
sublease has been extended on a month-to-month basis. The reduction of size
related to the Company's corporate headquarters is due to the significant
reduction in staff resulting from the Bankruptcy Filing.


RISK FACTORS

     DISCLAIMER OF OPINION ON FINANCIAL STATEMENTS

     The report of the Company's current independent auditors, Hein +
Associates, LLP, accompanying the Company's consolidated statements of net
assets available for liquidation as of December 31, 2001 and 2000, the statement
of financial condition as of March 31, 2000, the related consolidated statements
of changes in net assets for the year ended December 31, 2001 and for the period
April 1, 2000 through December 31, 2000, and operations and cash flows from
January 1, 2000 through March 31, 2000, includes an explanatory paragraph, which
provides that the Company has been named as a defendant in numerous lawsuits
with aggregate claims in excess of $11 billion dollars, and that the Company has
not been able to estimate the amounts expected to be paid to the claimants and
the Company's other creditors, and that because of the significance of such
matters, such auditors were unable to express and did not express an opinion
with respect to such financial statements.

     Further, the Company's former independent auditors, Deloitte & Touche LLP,
have advised the Company that they are not presently willing to reissue their
report on the Company's consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for the year ended December 31, 1999. As a
result, the Company's financial statements for such period included in this
Annual Report on Form 10-K for the year ended December 31, 2001 are not
accompanied by an independent auditors' report. We have included such financial
statements in this Annual Report on Form 10-K solely for historical and
informational purposes, and to attempt to comply with the financial statement
requirements of Regulation S-X with respect to this Report.


     PLAN OF REORGANIZATION

     The Company's Bankruptcy Filing is expected to facilitate the
reorganization/liquidation and sale of a significant portion of the Company's
remaining business and assets and operation of those assets pending any such
sale. As of the date of the Company's Bankruptcy Filing, the United States
Bankruptcy Court for the Central District of California assumed jurisdiction and


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control over the assets of the Company. As a debtor in possession, the Company
is authorized to operate its business, subject to the supervision of the
Bankruptcy Court. No assurance can be given that the Company will remain a
debtor-in-possession and that a trustee will not be appointed to operate the
Company's business. In addition, although the Company has begun the process of
formulating a plan of reorganization/liquidation to be submitted to the
Bankruptcy Court, no assurance can be given that the Bankruptcy Court will
confirm the Company's plan of reorganization/liquidation.

     It is management's intention to market for sale and operate pending such
sale all or a significant portion of the Company's remaining assets. Proceeds
from the sale of assets that are security for the Company's obligations to its
secured creditors will first be used to repay such secured creditors, which
include the Company's warehouse financing facility and a note payable related to
the financing of the Company's telemarketing facility in Irvine, California.

     The fact that the Company filed a voluntary bankruptcy petition may affect
the Company's ability to maintain certain present business arrangements and may
also affect the Company's ability to successfully negotiate future business
arrangements. Among the relationships that may be materially affected by the
Company's commencement of a bankruptcy case are the Company's relationships with
its warehouse financing facility lender and the Company's relationships with
other suppliers of goods and services vital to the Company's financing and
business operations.

     There is no assurance that the Company will generate enough cash flow from
its remaining servicing business, residual interests, investments, and proceeds
from asset sales to fund its existing operations or repay its debt obligations.
Based upon the advice of its outside bankruptcy counsel, management has
estimated that the overall reorganization/liquidation plan will take
approximately 12 months from December 31, 2001, subject to change depending on
the outcome of certain litigation.

     In addition to cash flow from its remaining servicing business, interest on
loans and investments, and proceeds from liquidation of assets, the Company
derives a significant amount of cash flow from distribution of its residual
interests (see detailed description of residual interests under "Revenue"
below). Among other factors, the amount of residual interests distribution may
be affected by loan prepayments, delinquencies or losses. In the event of an
increase in loan prepayments, delinquencies or losses, the Company's
distribution from residual interests may be adversely affected. In addition, the
outcome of pending litigation against the Company may also threaten to reduce or
eliminate the level of residual interests distribution. Therefore, there can be
no assurance that the Company will continue to receive the same level of cash
flow from residual interests as it has in the past. (See also "Proposed
Settlement.")


     EVENTS OF DEFAULT

     The Bankruptcy Filing may have triggered an event of default under various
agreements entered into by the Company, though the Company contends that it did
not, pursuant to, among other things, 11 USC ss.365(b)(2). Such agreements
include the Company's pooling and servicing agreements. However, in conjunction
with the sale of the servicing rights portfolio as mentioned above, and the
"Consent Agreement" entered into with the trustees and bond insurers, the
Company will have been deemed to have satisfied the events of default under the
Company's pooling and servicing agreements subject to monetary holdbacks
provisions contained in the agreement.

     The Bankruptcy Filing may have also created an event of default under the
Company's warehouse financing facility, though the Company contends that it does
not, pursuant to, among other things, 11 USC ss.365(b)(2). Notwithstanding the
pendency of the bankruptcy case, the warehouse lender may be able to exercise
its remedies under the agreement and require the Company to either repay the
entire balance outstanding on the warehouse financing facility or force the
Company to transfer ownership of the underlying loans held for sale, which are
collateralizing the loan.


     FINANCIAL REPORTING

     As a result of the Bankruptcy Filing and management's intention to market
and sell the assets of the Company, the financial statement presentation has
been revised to the liquidation basis of accounting. Accordingly, the


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"Consolidated Statement of Financial Condition" has been replaced with the
"Consolidated Statement of Net Assets Available for Liquidation," while the
"Consolidated Statement of Operations" has been replaced with the "Consolidated
Statement of Change in Net Assets."

     Liquidation basis accounting requires the Company to provide for all
liabilities related to expenses, including general and administrative, to be
incurred during the liquidation period. Therefore, the Company recorded and
accrued an estimate of liquidation expenses to be incurred using certain
assumptions, including assumptions as to the timing of asset disposition. There
is no assurance, however, that actual liquidation expenses will not exceed
management's estimates. In the event that actual liquidation expenses exceed
management's estimates, the Company's Consolidated Statement of Net Assets may
be adversely affected.

     Liquidation basis accounting also requires assets to be valued at their
estimated net realizable value and liabilities to be estimated as amounts to be
paid in settlement of the entity's obligation. Estimated net realizable value
represents management's best estimate as to fair market value of the assets, net
of selling expenses, and without consideration of the unknown impact that the
Bankruptcy Filing or the outcome of any litigation or claims may have on the
value of the assets. Therefore, the Company has recorded a valuation adjustment
to the cost basis of certain assets and liabilities to approximate net
realizable value. There can be no assurance, however, that the Company will be
successful in selling the assets at the net realizable value which has been
recorded in the Consolidated Statement of Net Assets Available for Liquidation.
Obtaining proceeds of less than the value stated on the Company's Consolidated
Statement of Net Assets Available for Liquidation may have a material adverse
effect on the Company's Consolidated Statement of Net Assets Available for
Liquidation.


     INTEREST RATE RISK MANAGEMENT

     Between the time of loan funding and loan sale or securitization, the
Company has exposure to interest rate risk relating to its fixed rate loans.
This is a result of the loans having an interest rate which is fixed based on
the prevailing rates at the time of funding, whereas a fluctuation in rates may
occur between that time and the time of loan sale or securitization. If market
interest rates were to rise between the funding and loan sale or securitization,
the fixed rate loans would, in turn, decrease in value. Owing to the minimal
amount of fixed rate loans, this risk was considered negligible and was not
hedged.


     LITIGATION

     In addition to being a party to various legal proceedings and asserted
claims arising out of the ordinary course of business, the Company has also been
involved with several lawsuits which have targeted its lending practices (see
Item 3. "Legal Proceedings"). Any substantial judgment against the Company or
settlements in connection therewith may materially diminish, if not eliminate,
any distribution to shareholders. The Company is currently unable to assess the
ultimate outcome with respect to such claims.


     SECURITIES RISKS

     RISK FACTORS REGARDING STOCK PRICE AND SETTLEMENT

     Stockholders may not receive the purchase price for their shares in
connection with the Settlement.

     The Settlement proposes, in pertinent part, that the Company would cancel
all issued and outstanding shares of the Company's common stock ("FACO Shares")
upon the effective date of the Amended Plan. After the effective date of the
Amended Plan, a payment would be made from the Redress Fund to those persons who
held FACO Shares on the effective date. FACO shareholders would be paid the
lesser of $1.50 per share or the shareholder's purchase basis of such shares
prior to cancellation, provided that the total amount of such payments to all

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shareholders does not exceed $3,250,000.00. Any FACO shares traded after
February 25, 2002, would be presumed to have a purchase basis not to exceed
$0.09. If the total amount of such payments would exceed $3.25 million, the
payment to each former shareholder of the Company would be reduced on an equal
proportionate basis until the total payments do not exceed $3.25 million.
Certain shareholders, including Brian and Sarah Chisick, would waive any payment
for FACO shares they hold.

     In the event that stockholders purchase FACO shares for a purchase price in
excess of $0.09 per share, and the Settlement was to be entered as part of a
final Amended Plan, such stockholders would not be able to receive from the
Redress Fund an amount in excess of $0.09 per share in connection with the
cancellation of their FACO shares. Further, there can be no assurance that such
stockholders would receive at least $0.09 per share in connection with the
Settlement.

     The effectiveness of the Settlement is conditioned on a number of events
which have not occurred, including, but not limited to, the approval of the
United States District Court for the Central District of California of the
Settlement, the Amended Plan, and other matters. In addition, there can be no
assurance that the Settlement or Amended Plan will be approved at all, or in the
proposed form.


     LIMITED PUBLIC MARKET FOR COMMON STOCK

     There is currently a limited public market for the Common Stock. Holders of
the Company's Common Stock may, therefore, have difficulty selling their Common
Stock, should they decide to do so. In addition, there can be no assurances that
such markets will continue or that any shares of Common Stock, which may be
purchased may be sold without incurring a loss. Any such market price of the
Common Stock may not necessarily bear any relationship to the Company's book
value, assets, past operating results, financial condition or any other
established criteria of value, and may not be indicative of the market price for
the Common Stock in the future. Further, the market price of the Common Stock
may be volatile depending on a number of factors, including the status of the
Company's Bankruptcy proceeding, business performance, industry dynamics, news
announcements or changes in general economic conditions. (See also "Proposed
Settlement.")


     DISCLOSURE RELATING TO LOW-PRICED STOCKS

     The Company's Common Stock is currently listed for trading in the
over-the-counter market on the NASD Electronic Bulletin Board which is generally
considered to be a less efficient market than markets such as NASDAQ or other
national exchanges, and which may cause difficulty in conducting trades. The
Company's securities are also subject to the "penny stock rules" adopted
pursuant to Section 15(g) of the Exchange Act. The penny stock rules apply to
non-NASDAQ companies whose common stock trades at less than $5.00 per share or
which have tangible net worth of less than $5,000,000 ($2,000,000 if the company
has been operating for three or more years). Such rules require, among other
things, that brokers who trade "penny stock" to persons other than "established
customers" complete certain documentation, make suitability inquiries of
investors and provide investors with certain information concerning trading in
the security, including a risk disclosure document and quote information under
certain circumstances. Many brokers have decided not to trade "penny stock"
because of the requirements of the penny stock rules and, as a result, the
number of broker-dealers willing to act as market makers in such securities is
limited. In the event that the Company remains subject to the "penny stock
rules" for any significant period, there may develop an adverse impact on the
market, if any, for the Company's securities. Because the Company's securities
are subject to the "penny stock rules," investors will find it more difficult to
dispose of the securities of the Company. Further, for companies whose
securities are traded in the Over-The-Counter Market, it is more difficult: (i)
to obtain accurate quotations, (ii) to obtain coverage for significant news
events because major wire services, such as the Dow Jones News Service,
generally do not publish press releases about such companies, and (iii) for
companies whose shares are traded in the Over-The-Counter Market to obtain
needed capital. (See "Item 5 - Market for Common Equity and Related Stockholder
Matters.") (See also "Proposed Settlement.")


     CONTROL BY PRINCIPAL STOCKHOLDERS

     Brian and Sarah Chisick, the Company's principal stockholders, and their
affiliates control the voting power of approximately 80% of the outstanding
Common stock. As a result of such Common Stock ownership, such persons will be
in a position to exercise significant control with respect to the affairs of the
Company and the election of directors, subject to the jurisdiction of the
Bankruptcy Court.

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<PAGE>

PRE-BANKRUPTCY OPERATIONS

     Until March 23, 2000, the Company originated loans through its retail
branch network, its Loan by Mail division, and its subsidiary, Coast Security
Mortgage. The Company believed that originating loans through an extensive
retail branch office network not only resulted in the most profitable loan
origination strategy due to the significant level of loan origination fees
earned by the Company, but also resulted in low delinquencies and losses due to
the Company's conservative underwriting criteria. Although the Company was
licensed to originate loans in 18 states and the District of Columbia, its
business has historically been concentrated in California.

     The following table shows the geographic distribution of the Company's loan
originations and purchases for the three years ended December 31, 2001:

                                          2001          2000          1999
                                      ------------------------------------------
    United States:
        California....................        --%           46%           39%
        New York......................        --            10            13
        Illinois......................        --            11             7
        New Jersey....................        --             9            12
        Washington....................        --             4             4
        Oregon........................        --             2             3
        Florida.......................        --             1             2
        Colorado......................        --             5             4
        Others states.................        --            12            16
                                      ------------------------------------------
          Total.......................        --%          100%          100%
                                      ==========================================


LOAN SALES

     SECURITIZATION

     As a fundamental part of its business and financing strategy, the Company
securitized the majority of its loans. In a typical securitization, the Company
sold loans to a special purpose entity, established for the limited purpose of
buying the assets from the Company and transferring the assets to a trust. The
trust issued interest-bearing securities, referred to as regular interest, which
are collateralized by the underlying mortgages. The proceeds from the sale of
the securities were used to purchase the assets from the Company. In addition to
the cash proceeds received in connection with the securitization, the Company
also retained a residual interests in the trust.

     As the holder of the residual interests certificates, the Company is
entitled to receive certain excess cash flows. These excess cash flows are the
difference between (a) the principal and interest paid by borrowers and (b) the
sum of (i) scheduled principal and interest paid to holders of the regular
interest certificates, (ii) trustee fees, (iii) third-party credit enhancement
fees, (iv) servicing fees and (v) loan losses. The Company begins receiving
these excess cash flows after certain overcollateralization requirements, which
are specific to each securitization and are used as a means of credit
enhancement, have been met.

     The Company arranged for credit enhancement to achieve an improved credit
rating on the regular interest certificates issued. This credit enhancement
generally takes the form of an insurance policy, issued by a monoline insurance
company, ensuring the holders of the regular interest certificates of timely
payment of scheduled principal and ultimate payment of scheduled interest at the
pass-through rate. In addition, the securitization trust structure typically


                                       8
<PAGE>

includes overcollateralization as an additional means of credit enhancement. The
purpose of the overcollateralization is to provide a source of payment in the
event of higher than anticipated loan losses. Overcollateralization requirements
may include an initial deposit, the sale of loans at less than par or retention
of distribution to the residual interests certificate holder until a specified
overcollateralization amount has been attained. This retention of excess cash
flow creates a faster amortization of the scheduled balance of the regular
interest certificates than the amortization of the principal balance of the
mortgage loans in the securitization pool. Losses resulting from defaults by
borrowers on a payment of principal or interest on the loans in the securitized
pool will reduce the overcollateralization to the extent that funds are
available and may result in a reduction in the value of the residual interests
certificates held by the Company. If payment defaults exceed the amount of
overcollateralization and excess cash flows, the insurance policy will pay any
further losses experienced by holders of the regular interest certificates in
the related securitization trust.

     Generally, the Company sold loans to a securitization trust at face value,
except when it sold loans at less than par for overcollateralization purposes.
Loans were sold without recourse except for certain representations and
warranties provided by the Company. Under the terms of the pooling and servicing
agreements entered into in connection with a securitization, the Company might
be required either to repurchase or to replace loans that do not conform to such
representations and warranties. To date, the Company has not been required to
substitute or repurchase any such loans.

     The Company retained the right to service loans it securitized from which
it derived management servicing fees, prepayment penalties and other ancillary
servicing fees, such as late charges, NSF and reconveyance fees. In July 2000,
the Company sold its servicing rights portfolio, except with respect to the
Company's servicing of its wholly-owned loans of approximately $36.1 million as
of December 31, 2001.


     WHOLE LOAN SALES

     Certain loans originated by the Company were not chosen for inclusion in a
securitization. These loans included loans with higher combined LTVs and/or
loans that had higher credit risk. The Company originated these loans to earn
the origination fees and then sold such loans to wholesale purchasers with
higher LTV risk tolerance on a servicing released basis.


REGULATION

     The Company's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities, and is subject
to various laws, judicial and administrative decisions imposing regulation on
all or part of its operations. Regulated matters include loan origination,
credit activities, maximum interest rates and finance and other charges,
disclosure to customers, terms of secured transactions, the collection,
repossession and claims handling procedures utilized by the Company, multiple
qualification and licensing requirements for doing business in various
jurisdictions and other trade practices.

     Failure to comply with these regulations can lead to loss of approved
status, termination or suspension of servicing contracts (potentially without
compensation to the servicer), class action lawsuits and administrative
enforcement action. The Company believes, however, that it is in compliance with
applicable federal and state laws and regulations.


     TRUTH IN LENDING

     The Truth in Lending Act ("TILA") and Regulation Z promulgated thereunder
contain certain disclosure requirements designed to provide consumers with
uniform, understandable information with respect to the terms and conditions of
loans and credit transactions in order to give them the ability to compare
credit terms. TILA also guarantees consumers a three-day right to cancel certain
credit transactions including loans of the type originated by the Company.
Management of the Company believes that it is in compliance with TILA in all
material respects. If the Company were found not to be in compliance with TILA,
aggrieved borrowers could have the right to rescind their loans and to demand,
among other things, the return of finance charges and fees paid to the Company.

     In September 1994, the Riegle Act was enacted. Among other things, the
Riegle Act makes certain amendments to TILA (the "TILA Amendments"). The TILA
Amendments generally apply to mortgage loans (other than mortgage loans to
finance the acquisition or initial construction of a dwelling) with (i) total
loan origination fees and other fees upon origination in excess of the greater


                                       9
<PAGE>

of eight percent of the total loan amount or a certain dollar amount (currently
$435) or (ii) an annual percentage rate of more than ten percentage points
higher than comparably maturing U.S. Treasury securities ("Covered Loans"). The
Company estimates that the majority of the loans originated and a portion of the
loans purchased by the Company until the Bankruptcy Filing were Covered Loans.

     The TILA Amendments impose additional disclosure requirements on lenders
originating Covered Loans and prohibits lenders from engaging in a pattern or
practice of originating Covered Loans that are underwritten solely on the basis
of the borrower's home equity without regard to the borrower's ability to repay
the loan. Consistent with its underwriting practices until the Bankruptcy Filing
with respect to all loans, the Company applied to all Covered Loans underwriting
criteria that took into consideration the borrower's ability to repay.

     The TILA Amendments also prohibit lenders from including prepayment fee
clauses in Covered Loans to borrowers with a monthly debt-to-income ratio in
excess of 50% or Covered Loans used to refinance existing loans originated by
the same lender or an affiliate of such lender. The TILA Amendments impose other
restrictions on Covered Loans, including restrictions on balloon payments and
negative amortization features, which the Company does not believe will have a
material impact on its operations. The Company reported $0.4 million, $2.2
million and $3.3 million in prepayment fee revenue in fiscal years 2001, 2000
and 1999, respectively. The decrease in prepayment penalties during 2001 is due
to the sale of the Company's servicing rights portfolio in July 2000.


     OTHER LENDING LAWS

     The Company was also required to comply with the Equal Credit Opportunity
Act of 1974, as amended ("ECOA"), which prohibits creditors from discriminating
against applicants on certain prohibited bases, including race, color, religion,
national origin, sex, age or marital status. Regulation B promulgated under ECOA
restricts creditors from obtaining certain types of information from loan
applicants. Among other things, it also requires certain disclosures by the
lender regarding consumer rights and requires lenders to advise applicants of
the reasons for any credit denial. In instances where the applicant is denied
credit or the rate or charge for loans increases as a result of information
obtained from a consumer credit agency, another statute, the Fair Credit
Reporting Act of 1970, as amended, requires lenders to supply the applicant with
the name and address of the reporting agency. In addition, the Company was
subject to the Fair Housing Act, which broadly prohibits certain discriminatory
practices in connection with the Company's business. The Company was also
subject to the Real Estate Settlement Procedures Act of 1974, as amended, and
regulations thereunder. The Company no longer originates loans in its current
business operations.

     There is currently pending new proposed federal legislation, as well as
proposals in certain states related to limiting the amount of origination fees
and interest rates that a lender may assess a borrower.

     In addition, the Company is subject to various other federal and state
laws, rules and regulations governing among other things, the licensing of, and
procedures that must be followed by, mortgage lenders and servicers, and
disclosures that must be made to consumer borrowers. Failure to comply with such
laws, as well as with the laws described above, may result in civil and criminal
liability. These laws are constantly changing. As a mortgage lender, the Company
has been, and expects to continue to be, subject to regulatory enforcement
actions and private causes of action from time to time with respect to its
compliance with applicable laws and regulations. The Company's lending practices
have in the past been and currently are under regulatory review by various state
authorities.


     INSURANCE REGULATORY LAWS

     As a condition to funding and servicing its loans, the Company requires
each borrower to obtain and maintain a policy of insurance providing coverage,
at an amount equal to the greater of the replacement cost or loan amount, on any
real property securing the borrower's loan. If the borrower fails to provide
such coverage prior to closing of the borrower's loan or if the borrower's
coverage is subsequently canceled or not renewed at any time during the loan
period and the borrower fails to obtain new coverage, the Company will provide
coverage on the borrower's behalf under policies insuring the Company's interest
in the collateral. Such practice is commonly referred to as "forced placement"
of insurance.

                                       10
<PAGE>

     Insurance which is force placed is subject to regulation under TILA, the
National Flood Insurance Act, and state insurance regulatory and lender
statutes. Such laws and regulations generally impose disclosure and notice
requirements which must be satisfied prior to forced placement of coverage, and
limitations on the amount of coverage that a lender may obtain to protect its
interest in the collateral.

     Failure to comply with any of the foregoing federal and state laws and
regulations could result in the imposition of civil penalties on the Company,
class action lawsuits and administrative enforcement actions.


     ENVIRONMENTAL MATTERS

     To date, the Company has not been required to perform any investigation or
clean up activities, nor has it been subject to any environmental claims. There
can be no assurance, however, that this will remain the case in the future.

     In the ordinary course of its business, the Company has acquired, and may
acquire in the future, properties securing loans that are in default. Although
the Company primarily lends to owners of residential properties, there is a risk
that the Company could be required to investigate and clean up hazardous or
toxic substances or chemical releases at such properties after acquisition by
the Company, and may be held liable to a governmental entity or to third parties
for property damage, personal injury and investigation and cleanup costs
incurred by such parties in connection with the contamination. In addition, the
owner or former owners of a contaminated site may be subject to common law
claims by third parties based on damages and costs resulting from environmental
contamination emanating from such property.


EMPLOYEES

     As of December 31, 2001 the Company had a total of 14 full-time employees,
who are located at the Company's corporate headquarters in Irvine, California.
The Company considers its relations with its employees to be good.


ITEM 2.  PROPERTIES

     In December 2000, the Company terminated a lease with a partnership
beneficially owned by Brian and Sarah Chisick, the Company's principal
stockholders, relating to its 40,000 square foot corporate headquarters located
at 17305 Von Karman Avenue, Irvine, California. The Company did not incur any
termination penalty related to such lease. Also during December, the Company
entered into a one-year sublease arrangement commencing on January 1, 2001 to
occupy 4,000 square feet of such building with a non-related third party. This
sublease has been extended on a month-to-month basis. The reduction of size
related to the Company's corporate headquarters is due to the significant
reduction in staff resulting from the Bankruptcy Filing. The Company believes
its facility is both suitable and adequate for the current business activities.


ITEM 3.  LEGAL PROCEEDINGS

     In June 2001, the Attorney General of the State of California filed an
action on behalf of the State in the Los Angeles County Superior Court against
the Company, one of its subsidiaries, the Chairman and Chief Executive Officer,
and a former Vice President. The suit alleges violations of the California
unfair business practices statute and certain federal laws. The Attorney General
seeks restitution, damages, civil penalties, attorneys' fees and costs. This
action was subsequently dismissed, and re-filed in the United States District
Court with the FTC litigation (see below). This action is one of the subjects of
the proposed Settlement (see "Proposed Settlement").

     In October 2000, the Federal Trade Commission filed an action against the
Company in the United States District Court for the Central District of
California. The action alleges that the Company failed to substantiate
advertising claims regarding cost savings to consumers of debt consolidation
loans, misrepresented the terms of the loans to consumers, and violated
Regulation Z regarding a consumer booklet. The action seeks injunctive relief
and rescission or restitution on behalf of certain borrowers. The Bankruptcy


                                       11
<PAGE>

Court enjoined prosecution of this action, but the U.S. District Court reversed
the injunction, and withdrew the reference to the Bankruptcy Court of the FTC
claim. That action is now proceeding in the District Court, and the Court set a
trial date in April 2002. This action is one of the subjects of the proposed
Settlement (see "Proposed Settlement").

     In July 2000, the Florida Attorney General commenced an action in Broward
County Circuit Court seeking injunctive relief, civil penalties, restitution,
rescission and damages, and named a number of current and former officers,
directors, and employees of the Company. The Bankruptcy Court enjoined
prosecution of this action but the U.S. District Court reversed the injunction,
and withdrew the reference to the Bankruptcy Court of the states' claims.
Florida subsequently re-filed the action in the United States District Court
with the FTC litigation (see above). This action is one of the subjects of the
proposed Settlement (see "Proposed Settlement").

     In May 2000, Jacqueline Bowser and Irene Huston filed a class action
lawsuit against the Company. The complaint seeks damages and rescission based
upon fraud and violation of the Truth-in-Lending Act and Home Ownership and
Equity Protection Act. The complaint was filed as an adversary proceeding in the
Company's consolidated bankruptcy case. In June 2000, Vincent Aiello and other
borrowers filed a similar action in the Bankruptcy Court. On February 15, 2001,
the Bankruptcy Court denied a motion for class certification in these actions
and sustained the Company's objections to the class proofs of claim filed. An
appeal of that order was filed, and the District Court reversed the holdings of
the Bankruptcy Court, and certified a class action. The Company is appealing
this ruling to the Ninth U.S. Circuit Court of Appeal. This action is one of the
subjects of the proposed Settlement (see "Proposed Settlement").

     In December 1998, the Attorney General of the State of Illinois filed an
action on behalf of the State against the Company in the Cook County Circuit
Court. The suit alleges violations of the Illinois Consumer Fraud Act, Deceptive
Trade Practices Act and Illinois Interest Act. The Attorney General seeks
injunctive relief, restitution, civil penalties, rescission, revocation of
business licenses, attorneys' fees and costs. The Company's motion to dismiss
the complaint was granted as to three of the four claims. The Company and the
State were discussing settlement prior to the Bankruptcy Filing. The Bankruptcy
Court enjoined prosecution of this action but the U.S. District Court reversed
the injunction, and withdrew the reference to the Bankruptcy Court of Illinois'
claim. An appeal filed by Illinois of the dismissal of most of its action is
proceeding in the Illinois state courts. Illinois subsequently re-filed the
action in the United States District Court with the FTC litigation (see above).
This action is one of the subjects of the proposed Settlement (see "Proposed
Settlement").

     In December 1998, the American Association of Retired Persons ("AARP")
filed an action against the Company and Brian Chisick, Chairman and Chief
Executive Officer of the Company, and his wife, Sarah, in the Superior Court of
California, in the County of Santa Clara. The suit alleges unfair, unlawful,
fraudulent and deceptive business practices and conspiracy. The AARP is seeking
injunctive relief, restitution, revocation of licenses, attorneys' fees and
costs. The case was in the discovery stage, and the parties were discussing
settlement prior to the Bankruptcy Filing. On March 16, 2001, the Bankruptcy
Court sustained the Company's objections to the proofs of claim filed by AARP in
their entirety. An appeal of that order was filed, and the District Court
reversed the holdings of the Bankruptcy Court. The Company is appealing the
ruling to the Ninth U.S. Circuit Court of Appeal. This action is one of the
subjects of the proposed Settlement (see "Proposed Settlement").

     In October 1998, the Attorney General of Massachusetts filed an action on
behalf of the Commonwealth against the Company in the Superior Court of
Massachusetts, in the County of Suffolk, alleging unfair and deceptive business
practices and seeking an injunction against the Company from charging rates,
points and other terms which significantly deviate from industry-wide standards
or which are otherwise unconscionable or unlawful. The remedies sought by the
Attorney General include injunctive relief; restitution for all consumers; civil
penalties; and the costs of investigating and prosecuting the action, including
attorneys' fees. A preliminary injunction was granted, limiting the points the
Company can charge to a total of five. In addition, the Company must advise the
Attorney General before any foreclosure actions are filed in the Commonwealth.
The Company filed a motion to vacate the injunction, which was denied without
prejudice. The case was in the discovery stage prior to the Company's Bankruptcy
Filing. The Bankruptcy Court enjoined prosecution of this action but the U.S.
District Court reversed the injunction, and withdrew the reference to the
Bankruptcy Court of the Commonwealth's claim. A motion for summary judgment was
filed by the Commonwealth of Massachusetts in State Court, which the Company
opposed, and the Court denied. This action is one of the subjects of the
proposed Settlement (see "Proposed Settlement").

                                       12
<PAGE>

     In June 1998, Leon Rasachack and Philip A. Ettedgui filed a class action
suit on behalf of all purchasers of the Company's Common Stock between April 24,
1997 through May 15, 1998. The suit was filed in the Superior Court of
California in the County of Orange against the Company, Brian Chisick, Sarah
Chisick and Mark Mason. The complaint alleges that the Company conspired against
those who purchased the stock during the stated class period by failing to
disclose known material adverse conditions in making certain public statements
about the Company's growth prospects. The state action was in the discovery
stage prior to the Company's Bankruptcy Filing. This action is stayed as to the
Company due to the Bankruptcy Filing, but since October 4, 2001, the action has
been proceeding as to the individual defendants.

     In April 2001, the United States District Court granted motions of the FTC,
the States of Arizona, California, Florida, Illinois, Massachusetts and New
York, and the Official Borrowers' Committee (on behalf of the approximately
2,000 borrowers who filed proofs of claim in the Bankruptcy), to withdraw the
reference to the Bankruptcy Court of the consideration of their claims. These
claims will now be determined in the District Court, though some litigation may
take place in the courts of the various states. On October 15, 2001, the
District Court found that it had jurisdiction over claims against various third
parties related to these actions, and indicated that the actions should proceed
on a coordinated basis in the District Court. These actions are among the
subjects of the proposed Settlement (see "Proposed Settlement").

     Shortly after the Chapter 11 filing, the Company obtained an Order from the
Bankruptcy Court staying certain pending actions as to current and former
officers, directors and employees of the Company. That Order has been extended
several times, most recently on July 2, 2001. The Company has not sought another
extension of that Order, which has now expired on October 4, 2001.

     The Company is also a party to various legal proceedings arising out of the
ordinary course of its business including a number of lawsuits alleging
misleading lending practices, some of which were filed either as class actions
or under private attorney general statutes. These claims are dealt with in the
proposed Settlement (see "Proposed Settlement").

     As a result of the Chapter 11 filing, most of these actions against the
Company have been stayed pursuant to 11 USC ss.362(a). Various private parties
and governmental units submitted proofs of claim against the Company. As of the
filing of this report, the Company had received over $11 billion in claims and
other unspecified amount claims from governmental units and others. These claims
are dealt with in the proposed Settlement (see "Proposed Settlement").


ITEM 3A.  PROPOSED SETTLEMENT

     As of February 25, 2002, the Company and its subsidiaries, and the Federal
Trade Commission ("FTC"), the Attorneys General of Arizona, California, Florida,
Illinois, and Massachusetts, the New York State Banking Department, and the
various Plaintiffs in the borrower related litigation reached a proposed
Settlement ("Settlement") of most of the outstanding litigation. The terms of
the Settlement are summarized below. The actual settlement documents are posted
on the website of the FTC, and can be found at
WWW.FTC.GOV/OPA/2002/03/FAMCO.HTM. The Settlement is conditioned on a number of
events, including, without limitation, various approvals and Court orders. The
Commissioners of the FTC approved the terms of the Settlement on March 15, 2002.

     In brief, the Settlement provides for a "Redress Fund" to be established
under the control of the FTC. The FTC would then administer a claims process for
the payment of borrower claims.

     The Redress Fund is to be comprised of the assets of the Company, less
necessary amounts to pay: (1) present and future anticipated administrative
expenses, (2) general unsecured creditors, in a percentage of their claims to be
determined as part of the process of confirming a Bankruptcy Plan, and (3)
present and future anticipated Professional and Employee claims in connection
with the Settlement. Brian and Sarah Chisick have agreed to (i) contribute the
sum of $20 million to the Company to be part of the Redress Fund, (ii) purchase
the Company's Residual Interests for the amount of $25.1 million, the stated
value of the residual interests on the Company's financial statements as of
December 31, 2001, and (iii) be enjoined from engaging in any residential loan
origination business, and have agreed to other restrictions.

                                       13
<PAGE>

     Certain insurers for the Company and others with whom it did business are
contributing additional sums to the Redress Fund, and the terms of the
Settlement shall be the basis for a liquidating Chapter 11 Plan (the "Amended
Plan") and a Court approved settlement of the FTC, State, and various borrower
class actions.

     As to the Company's shareholders, the Settlement proposes, in pertinent
part, that the Company would cancel all issued and outstanding shares of the
Company's common stock ("FACO Shares") upon the effective date of the Amended
Plan. After the effective date of the Settlement, a payment would be made from
the Redress Fund to those persons who held FACO Shares on the effective date.
FACO shareholders would be paid the lesser of $1.50 per share or the
shareholder's purchase basis of such shares prior to cancellation, provided that
the total amount of such payments to all shareholders does not exceed
$3,250,000.00. Any FACO shares traded after February 25, 2002, would be presumed
to have a purchase basis not to exceed $.09. If the total amount of such
payments would exceed $3.25 million, the payment to each former shareholder of
the Company would be reduced on an equal proportionate basis until the total
payments do not exceed $3.25 million. Certain shareholders, including Brian and
Sarah Chisick, would waive any payment for FACO shares they hold.

     The effectiveness of the Settlement is conditioned on a number of events
which have not occurred, including, but not limited to, the approval of the
United States District Court for the Central District of California of the
Settlement, the Amended Plan, and other matters. In addition, there can be no
assurance that the Settlement or Amended Plan will be approved at all, or in the
proposed form.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     During the year ended December 31, 2001, the Company did not submit any
matters to a vote of its stockholders.

                                       14
<PAGE>

                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     In July 1996, the Company's Common Stock began trading under the symbol
FACO on the NASDAQ National Market. The NASDAQ-Amex Market Group, a NASD
Company, delisted the Company's Common Stock from the NASDAQ National Market as
of the opening of business on April 20, 2000 due to (i) the uncertainty
regarding the timing of effectiveness for a plan of bankruptcy reorganization;
(ii) the uncertainty regarding the specific terms of the planned bankruptcy
reorganization; (iii) the Company's failure to satisfy NASDAQ's continued
listing requirements; (iv) concerns regarding the residual equity interest of
the existing listed securities holders; and (v) the Company's Bankruptcy Filing
under Chapter 11 of the U.S. Bankruptcy Code and associated public interest
concepts set forth under Marketplace Rules 4450(f) and 4430(a)(3). The Company's
stock is currently quoted on the NASD's electronic bulletin board under the
symbol "FACOQ." The Company currently has 17,864,788 outstanding shares of
Common Stock. The following table sets forth the range of high and low closing
sale prices of the Company's Class A Common Stock for the periods indicated:

                                                           High         Low
                                                       ------------ ------------
    2001
       First Quarter...................................    1.25        0.12
       Second Quarter..................................    0.65        0.25
       Third Quarter...................................    0.32        0.05
       Fourth Quarter..................................    0.25        0.08

    2000
       First Quarter...................................   3.125       1.656
       Second Quarter..................................   2.188       0.001
       Third Quarter...................................    0.48       0.22
       Fourth Quarter..................................    0.25       0.030

    1999

       First Quarter...................................   5 11/16     2 11/16
       Second Quarter..................................   4 3/8       2 15/16
       Third Quarter...................................   3 7/16      1 3/4
       Fourth Quarter..................................   3 7/16      1 5/16

     The closing sale price of the Common Stock at March 28, 2002 was $0.01.
(See both "Proposed Settlement" and "Risk Factors.")

     The Company did not pay or declare any dividends on its Common Stock during
the three years ended December 31, 2001, nor does it anticipate paying any
dividends in the foreseeable future.

     As partial consideration for obtaining its $150 million warehouse financing
facility, the Company granted the warehouse lender stock warrants during both
1998 and 1999. The stock warrants granted in 1998 provide the lender the option
to purchase 1% of the Company's then outstanding common stock, with an effective
date of January 15, 2001. The original effective date of the 1998 warrants was
amended in 1999 from February 15, 1999. These warrants have a 10-year exercise
period and were granted at an exercise price of $3 5/16. The warehouse lender
subsequently released all rights, titles and interest that it had with respect
to the 1998 warrants, and released the Company from any obligation thereunder.
The stock warrants granted in 1999 provide the warehouse lender the option to
purchase 4.9% of the Company's then outstanding common stock, with an effective
date of January 15, 2000. These warrants have a 10-year exercise period and were
granted at an exercise price of $2.00. The warehouse lender has not exercised
its call option under any of the above described stock warrant arrangements.

                                       15
<PAGE>

     In July 1996, the shareholders of the Company approved a Stock Incentive
Plan for directors, officers and other key employees of the Company, under which
2,125,000 shares of Common Stock were available for grant. Under the plan,
options vest 25% six months from the date of grant, and 25% each year thereafter
until fully vested, and expire on the earlier of ten years from the date of
grant or 90 days after an optionee's termination of service. No options have
been granted under the plan following the Bankruptcy Filing. The balance of
outstanding and unexercised options as of December 31, 2001 was 610,722 with an
average exercise price of $6.24.

     As of December 31, 2001, Brian Chisick, Chairman of the Board and chief
executive officer and a director of the Company, and Sarah Chisick, a former
director of the Company, are the beneficial owners of 14,168,800 outstanding
shares of Common Stock, constituting approximately 80% of the Company's
outstanding voting power. Pursuant to information included in Schedule 13(d)
(Amendment No. 4) filed on October 17, 2000 by the Chisicks: the above shares
include 2,222,600 shares held in escrow pending (i) the evaluation by the
Company of the opportunity of the Company to purchase such stock, and (ii) the
review of the transaction by the U.S. Bankruptcy Court. The Schedule 13(d)
states that the escrow shares will not be voted by the Chisicks pending the
resolution by the U.S. Bankruptcy Court of certain matters related to the
Company's opportunity to purchase the escrow shares.

     In April 1997, the Board of Directors approved a share repurchase program
under which the Company is authorized to purchase up to 7.5 million shares of
its Common Stock. Cumulatively, as of December 31, 2000 the Company had
repurchased approximately 4.3 million shares of Common Stock for a cost of
approximately $52.3 million. The Company did not repurchase any shares of Common
Stock during the year ended December 31, 2001.

     On April 9, 2002, the Company had approximately 18 stockholders of record
of its Common Stock, not giving effect to shares held in "street name" or by
nominees. The Company believes its Common Stock is beneficially held by more
than 619 stockholders.

                                       16
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

                                          FIRST ALLIANCE CORPORATION
                                     SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
                                                         1/1 - 3/31,
                                                             2000         1999         1998          1997        1996(1)
                                                         -------------------------------------------------------------------
                                                                              (Dollars in thousands)
<S>                                                       <C>           <C>           <C>         <C>           <C>
STATEMENT OF INCOME DATA:
   Gain (loss) on sale of loans.........................  $       5     $  12,288     $  10,699   $  22,644     $  10,965
   Net loan origination and other fees...................     1,307        41,239        44,252      44,034        37,206
   Interest revenue......................................     3,169        14,024        21,754      21,396        13,562
   Loan servicing and other fees revenue.................     1,121         2,388         7,103       7,575         9,138
   Total revenue.........................................     5,602        69,939        83,808      95,649        70,871
   Interest expense......................................     1,840        11,180         8,382       3,164         2,655
   Non-interest expense..................................    26,093        52,381        52,473      39,840        29,977
   Income before income tax provision....................   (22,331)        6,378        22,953      52,645        38,239
   Net income............................................   (14,515)        3,828        14,216      32,772        32,139
   Basic net income per share............................     (0.81)         0.21          0.73        1.50          1.72
   Diluted net income per share..........................     (0.81)         0.21          0.73        1.49          1.72
   Pro forma net income (2)..............................                                                          22,562
   Pro forma diluted net income per share (2) ...........                                                            1.02
   Income (loss) before income tax provision as a % of
      revenue............................................     (399%)         9.1%         27.4%       55.0%           54%
   Dividends declared (3) ...............................                                                       $  60,080
STATEMENT OF FINANCIAL CONDITION DATA:
   Cash and cash equivalents ............................ $   9,320     $  15,086     $  18,052   $  14,032     $  27,414
   Loans held for sale ..................................    80,917        19,782        24,421      54,872        11,023
   Loans receivable held for investment (4)..............       714         1,521        57,667       2,082         2,432
   Residual interests....................................    44,763        48,222        48,720      50,238        29,253
   Mortgage servicing rights.............................     7,562         8,673        10,033       9,240         6,025
   Total assets..........................................   165,645       112,154       177,603     158,147        87,457
   Total borrowings......................................    80,871        18,748        88,818      57,767           131
   Stockholders' equity .................................    65,836        79,105        74,587      91,277        77,978
OTHER DATA:
   Loan originations and purchases:
     Retail originations................................. $  69,510     $ 410,040     $ 458,788   $ 398,359     $ 291,807
     Coast Security Mortgage.............................    16,548        47,855
     Loan by Mail........................................     5,257        16,012
     Wholesale purchases.................................       563         9,632        74,805     130,151        32,681
                                                         -------------------------------------------------------------------
        Total ........................................... $  91,878     $ 483,539     $ 533,593   $ 528,510     $ 324,488
                                                         ===================================================================
   Average origination loan size......................... $     121     $     108     $      94   $      88     $      83
   Number of operating branches..........................        --            35            32          33            23
   Weighted average interest rate on loan originations
      and purchases......................................      9.8%          9.1%          9.3%        9.5%          9.6%
   Weighted average initial combined loan-to-value ratio      69.8%         67.3%         65.3%       62.5%         62.2%
   Loan sales:
    Securitizations...................................... $      --     $ 429,990     $ 430,003   $ 339,005     $ 267,661
    Whole loan sales.....................................    24,544       130,872       154,111     144,633        71,864
                                                         -------------------------------------------------------------------
        Total ........................................... $  24,544     $ 560,862     $ 584,114   $ 483,638     $ 339,525
                                                         ===================================================================
   Servicing portfolio (5) .............................. $ 901,999     $ 892,327     $ 865,663   $ 799,085     $ 641,191
   Total delinquencies as a % of the servicing portfolio.      4.2%          3.5%          4.8%        4.1%          5.5%
   Real estate owned (6)................................. $   1,568     $  1,141      $  2,063    $   1,688     $   3,951
   Real estate owned as a % of the servicing portfolio...      0.2%          0.1%          0.2%        0.2%          0.6%
   Losses on real estate owned as a % of the average
    servicing portfolio during the period (7)............     0.06%         0.15%         0.12%       0.24%         0.35%

</TABLE>

--------------------------------------------------------------------------------
(1)  During 1996, the Company completed the IPO whereby 6,037,500 shares of
     Class A Common Stock were issued and the Company changed its tax status
     from that of an S corporation to that of a C corporation. The Company
     received $63 million of net proceeds from the IPO, of which $45 million was
     used to pay the S distribution notes.
(2)  Pro forma amounts reflect adjustments for federal and state income taxes as
     if the Company had been taxed as a C corporation rather than an S
     corporation. The Company ceased to be an S corporation concurrent with the
     IPO in July 1996.
(3)  Included in dividends in 1996 is $45 million of S distribution dividends
     made in the form of the S distribution notes. Historical dividends include
     dividends used by the stockholders to pay income taxes on the Company's S
     corporation earnings and are not indicative of the Company's present
     dividend policy.
(4)  During 1998, the Company discontinued its United Kingdom loan originations.
     Accordingly, the Company had reclassified approximately $57 million of such
     loans from loans held for sale to loans receivable held for investment at
     December 31, 1998. In July 1999, the Company sold its entire portfolio of
     United Kingdom loans.
(5)  In July 1999, the Company sold its entire servicing portfolio of United
     Kingdom loans of approximately $48.7 million. The United Kingdom portfolio
     represents approximately $29.4 million and $63.6 million of the total
     servicing portfolio balance at December 31, 1997 and 1998, respectively.
(6)  Includes REO of the Company as well as REO of the securitization trusts
     serviced by the Company; however, excludes private investor REO not
     serviced by the Company.
(7)  Losses on real estate owned as a percentage of the average servicing
     portfolio is annualized during 2000 since only activity for the first
     quarter is presented.

                                       17
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATION

BANKRUPTCY

     On March 23, 2000, FACO, along with several of its subsidiaries, filed
voluntary petitions under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Filing") in the United States Bankruptcy Court for the Central
District of California. As of the date of the Company's voluntary bankruptcy
petition, the United States Bankruptcy Court for the Central District of
California assumed jurisdiction over the assets of the Company. As a debtor in
possession, the Company remains in control of its assets and is authorized to
operate its business, subject to the supervision of the Bankruptcy Court. The
Company's filing is expected to facilitate the reorganization, marketing, sale
and liquidation of the Company's remaining business and assets. The Company has
laid off over 400 employees, ceased all loan origination and branch operations,
and therefore, has no operating loan origination business. The affected offices
were located in California, New York, New Jersey, Illinois, Arizona, Colorado,
Maryland, Oregon, Utah and Washington. The Company's decision to file bankruptcy
was primarily due to legislative proposals limiting revenue generating capacity
and increased litigation from private attorneys and state and federal agencies.
For financial statement presentation only, March 31, 2000 will be considered the
effective date of the Bankruptcy Filing.

     Since the Bankruptcy Filing, the Company has been principally engaged in
dealing with bankruptcy-related matters, and, together with its outside
advisors, formulating a substantially modified business strategy in an effort to
expeditiously formulate, confirm and consummate a plan to sell and market the
Company's business units and related assets. The Company, which at its peak
employed over 450 people, had approximately 14 full-time employees housed at its
corporate headquarters in Irvine, California as of December 31, 2001. The
primary function of the remaining staff is to assist the Company in facilitating
the sale of the Company's remaining assets and settlement of its related
liabilities.

     In connection with the Bankruptcy Filing, it is management's intention to
market for sale and operate pending such sale all or a significant portion of
the Company's remaining assets. Proceeds from the sale of assets that are
security for the Company's obligations to its secured creditors will first be
used to repay such secured creditors, which include the Company's warehouse
financing facility and a note payable related to the financing of the Company's
telemarketing facility in Irvine, California. Any proceeds available after the
satisfaction of the secured obligations from the sale of such creditors'
collateral, and proceeds from the sale of the Company's free and clear assets
will be utilized to repay unsecured creditors with allowed claims with the
remaining proceeds available for the shareholders. There can be no assurance,
however, that the Company will be successful in selling the assets at a value
which will allow the Company to fulfill all of its debt obligations or result in
a liquidation distribution to its shareholders. All repayments mentioned above
will be in accordance with United States Bankruptcy law, pursuant to appropriate
orders of the United States Bankruptcy Court. Further, the Company has recently
entered into a proposed settlement of its outstanding litigation.

     Management, based upon the advice of its outside bankruptcy counsel, has
estimated that the overall reorganization/liquidation plan will take
approximately 12 months from December 31, 2001, subject to change depending on
the outcome of certain litigation. No assurance, however, can be given that the
Company will be able to complete its reorganization/liquidation plan within the
time expected.


FINANCIAL STATEMENT PRESENTATION

     As a result of the Bankruptcy Filing and management's intention to market
and sell the assets of the Company, the liquidation basis of accounting and
financial statement presentation was adopted for periods subsequent to March 31,
2000. Accordingly, for financial information presented subsequent to March 31,
2000, the "Consolidated Statement of Financial Condition" has been replaced with
the "Consolidated Statement of Net Assets Available for Liquidation," while the
"Consolidated Statement of Operations" has been replaced with the "Consolidated
Statement of Change in Net Assets." Prior to March 31, 2000, the Company
reported "Consolidated Statement of Financial Condition" and "Consolidated
Statement of Operations" using the accounting principles applicable to going
concern entities. Therefore, financial statements presented for the period prior
to the Bankruptcy Filing are not comparable to the financial statements
presented subsequent to the Bankruptcy Filing, which applies the liquidation
basis of accounting.

                                       18
<PAGE>

     Liquidation basis accounting requires the Company to provide for all
liabilities related to expenses, including general and administrative, to be
incurred during the liquidation period. Therefore, the Company has recorded and
accrued an estimate of liquidation expenses to be incurred using certain
assumptions, including assumptions as to the timing of asset disposition.

     Liquidation basis accounting also requires assets to be valued at their
estimated net realizable value and liabilities to be estimated as amounts to be
paid in settlement of the entity's obligation. Estimated net realizable value
represents management's best estimate as to fair market value of the assets, net
of selling expenses, and without consideration to the unknown impact that the
Bankruptcy Filing or the outcome of any litigation or claims may have on the
value of the assets. Therefore, the Company has recorded a valuation adjustment
to the cost basis of certain assets and liabilities to approximate net
realizable value.


REVENUE

     The Company's revenue has historically been comprised of three primary
components, consisting of loan origination and sale, loan servicing and other
fees, and interest income. The Bankruptcy Filing has lead to the closure of the
Company's loan origination and retail branch operations. In addition, the
Company sold the majority of its servicing rights portfolio in July 2000. The
Company's current business operation has now been reduced to the servicing of
approximately $36.1 million of its wholly-owned loans. Consequently, the
Company's current sources of cash include servicing income from its remaining
servicing business, proceeds from liquidation of assets and interest income from
residual interests, loans held for sale and interest earned on outstanding cash
balances. Other than proceeds from the sale of assets, the Company expects
servicing and interest income to be its only source of revenue.


     REVENUE COMPONENTS

     The following discussion describes the Company's historical revenue
sources, most of which have been discontinued as of the date of this report.

     Loan origination and sale revenue consisted of gain on sale of loans and
the recognition of net origination fees. The Company's strategy of originating,
as compared to purchasing, the majority of its loan volume resulted in the
generation of a significant amount of loan origination fees.

     Loan servicing and other fee income represent management servicing fees and
other ancillary fees, including prepayment penalties, received from servicing
loans and income generated from the Company's credit card operations, which was
discontinued in late 1998. Mortgage servicing rights were amortized against loan
servicing and other fee income over the period of estimated net future servicing
fee income.

     Interest and other income is primarily comprised of three components: (i)
interest on loans held for sale during the warehousing period and loans
receivable held for investment, (ii) interest on residual interests, and (iii)
interest from investments.


     SECURITIZATIONS

     As a fundamental part of its business and financing strategy, the Company
securitized the majority of its loans. In a typical securitization, the Company
sold loans to a special purpose entity, established for the limited purpose of
buying the assets from the Company and transferring the assets to a trust. The
trust issued interest-bearing securities, referred to as regular interest, which
were collateralized by the underlying mortgages. The proceeds from the sale of
the securities were used to purchase the assets from the Company. In addition to
the cash proceeds received in connection with the securitization, the Company
also retained a residual interest in the trust.

                                       19
<PAGE>

     Gains on servicing retained sales of loans through securitization represent
the difference between the net proceeds to the Company in the securitization and
the allocated cost of loans securitized. In accordance with SFAS No. 125, the
allocated cost of the loans securitized is determined by allocating their
acquisition cost (for purchased loans) or net carrying value (for originated
loans) between the loans securitized and the residual interests and the mortgage
servicing rights retained by the Company based upon their relative fair values.
At origination, the Company classified the residual interests as trading
securities, which are carried at fair value. The Company did not consummate a
securitization during 2001 or 2000 and therefore did not record a gain on
servicing retained sales.

     As the holder of the residual interests, the Company is entitled to receive
certain excess cash flows. These excess cash flows ("spread") are the difference
between (a) principal and interest paid by borrowers and (b) the sum of (i)
scheduled principal and interest paid to holders of the regular interests, (ii)
trustee fees, (iii) third-party credit enhancement fees, (iv) servicing fees,
and (v) loan losses. The Company begins receiving these excess cash flows after
certain overcollateralization requirements, which are specific to each
securitization and are used as a means of credit enhancement, have been met. The
Company utilizes a cash flow modeling technique in order to arrive at the fair
value of residual interests. The Company estimates the excess future cash flows
by taking into consideration, among other factors, certain assumptions regarding
prepayment speeds and credit losses. To value residual interests at the time of
securitization, the Company used historical prepayment experience assumptions.
To value the residual interests at each reporting period, the Company arrives at
its prepayment assumptions by using the actual six-month prepayment average,
which is applied to the first 18 months of cash flows, and the actual life to
date prepayment average to the remaining months of cash flows. Furthermore, such
cash flows are discounted at a rate which the Company believes is an appropriate
risk-adjusted market rate of return.

    The Company had historically valued the residual interests using the above
model, which took into account discounted cash flows, using prepayment, default,
loss and interest rate assumptions that market participants would use for
similar financial instruments. When the Company entered liquidation, it adjusted
the valuation formula to use only discounted cash flows and return of
overcollateral, and used the valuation of the Residual Interests as of March 31,
2000, as a starting point. This conservative adjustment was made to reflect the
lack of a recognized market for these complex derivative interests, litigation
risk, and other market conditions. In year 2000, there was not a significant
difference between the valuation and the prior model. In year 2001 use of the
prior model would have resulted in a higher valuation than use of the
methodology adopted in 2000. Since the facts that led the Company to make the
conservative adjustment in 2000 remain, the Company decided to make no upward
adjustment to the valuation. In March 2002, the Company announced a proposed
settlement of borrower litigation. The negotiated terms of the proposed
settlement, if approved by the Court, will result in the sale of these assets
for the value on the Company's financial statement as of December 31, 2001 to
Brian and Sarah Chisick, related parties.

     As of December 31, 2001, the Company's investment in residual interests
totaled $25.1 million. As part of the Settlement, the Chisicks have agreed to
purchase the Company's residual interests for the amount of $25.1 million (see
"Proposed Settlement").

     The Company utilized the following key assumptions to value its residual
interests certificates originated during 1999:

<TABLE>
<CAPTION>
                                                             ------------------------------------------------------------
                                                                                        1999
                                                             ------------------------------------------------------------
                                                                  Fixed Rate            Adjustable
                                                                     Loans            Rate Loans (1)         Total
                                                             ------------------------------------------------------------
<S>                                                                  <C>                  <C>                 <C>
Weighted average CPR (constant prepayment rate).............           29%                  39%                 34%
Weighted average discount rate..............................           18%                  18%                 18%
Weighted average annualized credit
   losses - in basis points.................................           50                   50                  50
Weighted average life (in years)............................         2.90                 1.99                2.43

</TABLE>

                                       20
<PAGE>

     The following table represents certain loan characteristics related to the
Company's securitizations as of the years ended 2001 and 2000:

<TABLE>
<CAPTION>
                                       -------------------------------------------- --------------------------------------------
                                                          2001                                         2000
                                       -------------------------------------------- --------------------------------------------
                                        Fixed Rate      Adjustable                   Fixed Rate      Adjustable
                                          Loans       Rate Loans (1)      Total        Loans       Rate Loans (1)      Total
                                       ------------- ---------------- ------------- ------------- ---------------- -------------
                                                  (Dollars in thousands)                       (Dollars in thousands)
<S>                                      <C>            <C>            <C>            <C>            <C>            <C>
Weighted average coupon ...........          9.49%          9.90%          9.61%          9.49%         10.24%          9.73%
Number of loans ...................         4,186          1,327          5,513          5,418          1,985          7,403
Total principal amount of loans ...      $308,840       $126,920       $435,760       $419,816       $203,402       $623,218
Yield to bondholders ..............          6.90%          2.36%          5.58%          6.89%          7.00%          6.93%
Net spread to residual holder (2) .          1.88%          6.70%          3.28%          1.90%          2.58%          2.12%
Current overcollateralization level      $ 10,971       $ 14,811       $ 25,782       $ 12,834       $ 15,957       $ 28,791
Overcollateralization target ......      $ 11,026       $ 14,998       $ 26,024       $ 13,164       $ 17,580       $ 30,744
Principal amount of loans 30 days
   or more past due (3) ...........      $ 13,817       $ 15,538       $ 29,355       $ 18,161       $ 18,675       $ 36,836
Net credit losses during the year .      $    471       $    631       $  1,102       $    202       $    756       $    958

</TABLE>

(1)  Loans which carry a fixed interest rate for the first two or three years of
     the loan contract and which adjust to a variable rate for the remaining
     life of the contract are classified as and included under "Adjustable Rate
     Loans"
(2)  Represents gross spread minus servicing, trustee and insurance fees
(3)  Including REOs


     MORTGAGE SERVICING RIGHTS

     Upon securitization or sale of servicing retained loans, the Company
capitalized the cost associated with the right to service mortgage loans based
on a fair value analysis of the mortgage servicing rights. The Company
determined the fair value of mortgage servicing rights based on the present
value of estimated net future cash flows related to servicing income. Such cash
flow projections incorporated assumptions, including servicing costs, prepayment
rates and discount rates, consistent with those an unrelated third party would
utilize to value such mortgage servicing rights. These assumptions are similar
to those used by the Company to value residual interests. In July 2000, the
Company sold its servicing rights portfolio to an unaffiliated third party. The
sale did not have a material adverse effect on the Company's financial
condition; however, the Company's source of future loan servicing revenues has
significantly diminished as a result of this transaction. As of December 31,
2001, the Company was servicing approximately $36.1 million of its wholly-owned
loans.

                                       21
<PAGE>
<TABLE>
<CAPTION>

     LOAN ORIGINATION AND PURCHASES
                                                                                  FOR THE YEARS ENDED DECEMBER 31,
                                                                             --------------------------------------------
                                                                                  2001           2000          1999
                                                                             --------------------------------------------
                                                                                       (Dollars in thousands)
     <S>                                                                           <C>           <C>          <C>
     Loan originations and purchases:
         Retail originations..............................................         $    --       $ 69,510     $ 410,040
         Coast Security Mortgage..........................................              --         16,548        47,855
         Loan by Mail.....................................................              --          5,257        16,012
         Wholesale purchases..............................................              --            562         9,632
                                                                             --------------------------------------------
              Total originations and purchases............................         $    --       $ 91,877     $ 483,539
                                                                             ============================================

     Number of operating branches as of the end of the period:
           California ....................................................              --             --            12
           Other States...................................................              --             --            23
                                                                             --------------------------------------------
              Total ......................................................              --             --            35
                                                                             ============================================

     Weighted average initial interest rate...............................              --          9.8%          9.1%
     Weighted average initial combined loan-to-value ratio................              --         69.8%         67.3%
     Average origination loan size........................................         $    --       $  121        $  108

     There were no loan originations or purchases in 2001.

</TABLE>

     LOAN SALES
<TABLE>
<CAPTION>
                                                                                   FOR THE YEARS ENDED DECEMBER 31,
                                                                               ------------------------------------------
                                                                                   2001          2000          1999
                                                                               ------------------------------------------
                                                                                        (Dollars in thousands)
<S>                                                                                  <C>          <C>          <C>
     Securitizations...........................................................      $   --       $    --      $429,990
     United Kingdom whole loan sales..........................................           --            --        47,028
     Domestic whole loan sales  ..............................................           --        26,335        83,844
                                                                               ------------------------------------------
         Total ...............................................................       $   --      $ 26,335      $560,862
                                                                               ==========================================
</TABLE>

     There were no loan sales during 2001.


RESULTS OF OPERATIONS AND CHANGES IN NET ASSETS

     A discussion of the material factors which affected the Company's changes
in net assets for 2001 and results of operations (for the periods prior to
January 1, 2000 to March 31, 2000) and changes in its net assets in liquidation
(for the period of April 1, 2000 to December 31, 2000) is presented below:


     2001 COMPARISON TO 2000

     For the year ended December 31, 2001, the Company reported an excess of
expenses over income of $11.2 million. Such loss compares to a total loss of
$26.2 million for the year ended December 31, 2000. Revenues decreased $5.0
million due to lower interest income and lower servicing income due to decreased
loan balances. The decrease in expenses of $22.0 million during 2001 is mainly
attributable to lower compensation from reduced staffing levels, as well as a
reduction in interest expense as a result of both declining interest rates and
reduced balances on the warehouse line.

                                       22
<PAGE>

     As mentioned earlier, the Company adopted the liquidation basis of
accounting due to the Bankruptcy Filing and management's intention to liquidate
the assets of the Company. Liquidation basis accounting requires the Company to
provide for all liabilities related to expenses, including general and
administrative, to be incurred during the liquidation period. Therefore, the
Company has recorded approximately $13.0 million in estimated liquidation cost
accruals as of December 31, 2001.

     Liquidation basis accounting also requires assets to be valued at their
estimated net realizable value and liabilities to be estimated as amounts to be
paid in settlement of the entity's obligation. Estimated net realizable value
represents management's best estimate as to fair market value of the assets, net
of selling expenses, and without consideration to the unknown impact that the
Bankruptcy Filing or the outcome of any litigation may have on the value of the
assets. Therefore, the Company recorded a valuation adjustment to the cost basis
of certain assets and liabilities of approximately $3.4 million during 2001.


     2000 COMPARISON TO 1999

     For the year ended December 31, 2000, the Company reported (i) net loss of
$14.5 million from January 1, 2000 to March 31, 2000 and (ii) an excess of
expenses (including income taxes) over income of $11.7 million from April 1,
2000 to December 31, 2000, resulting in a total loss of $26.2 million. Such loss
compares to net income of $3.8 million earned during 1999. The decrease in net
income during 2000 as compared to the prior year is primarily related to a
decrease in revenues, offset by lower expenses and a net operating loss
carryback tax benefit. Revenues decreased $50.3 million due to lower loan
origination and sale revenue resulting from the Company's Bankruptcy Filing, the
discontinuation of the Company's loan origination operation and the sale of its
servicing rights portfolio. The decrease in expenses of $15.7 million during
2000 is also attributable to the discontinuation of the Company's loan
origination operation and termination of over 90% of the Company's employees.
Such decrease was offset by an increase in liquidation costs and adjustment to
liquidation basis (see explanation below). Additionally, the Company recorded a
tax benefit of $2.1 million in 2000, as compared to a tax provision of $2.5
million during 1999.

     As mentioned earlier, the Company adopted the liquidation basis of
accounting due to the Bankruptcy Filing and management's intention to liquidate
the assets of the Company. Liquidation basis accounting requires the Company to
provide for all liabilities related to expenses, including general and
administrative, to be incurred during the liquidation period. Therefore, the
Company has recorded approximately $9.9 million in estimated liquidation cost
accruals as of December 31, 2000.

     Liquidation basis accounting also requires assets to be valued at their
estimated net realizable value and liabilities to be estimated as amounts to be
paid in settlement of the entity's obligation. Estimated net realizable value
represents management's best estimate as to fair market value of the assets, net
of selling expenses, and without consideration to the unknown impact that the
Bankruptcy Filing or the outcome of any litigation may have on the value of the
assets. Therefore, the Company recorded a valuation adjustment to the cost basis
of certain assets and liabilities of approximately $4.1 million during 2000.


INCOME TAXES

     The Company's actual tax rates for 2001, 2000 and 1999 were (0.08)%, (7.4)%
and 40.0%, respectively.

     During the first two quarters of 1998, the Company began securitizing its
loans in the form of owners' trusts. By utilizing this securitization structure,
the Company's securitization of loans were treated as a borrowing for State and
Federal tax purposes rather than as a sale. In the third and fourth quarters of
1998, however, the Company decided to securitize its loans in the form of a real
estate mortgage investment conduit ("REMIC"), under which the securitization of
loans will be treated as a sale for State and Federal tax purposes. During 1999,
all securitizations were consummated in the form of a REMIC.

                                       23
<PAGE>

SERVICING

     The following tables provide data on loan delinquency, REO and net losses
for the Company's servicing portfolio, which includes Company-owned loans:

<TABLE>
<CAPTION>
                                                                        AS OF DECEMBER 31,
                                        ------------------------------------------------------------------------------------
                                                     2001                       2000                        1999
                                        ---------------------------- --------------------------- ---------------------------
                                                           % of                        % of                        % of
                                         (Dollars in    Servicing    (Dollars in    Servicing    (Dollars in    Servicing
                                         Thousands)     Portfolio     Thousands)    Portfolio     Thousands)    Portfolio
                                        -------------- ------------- ------------- ------------- ------------- -------------
<S>                                         <C>             <C>          <C>             <C>        <C>              <C>
Servicing portfolio ....................    $ 36,135                    $ 62,296                    $892,327
                                        ==============               =============               =============
30-59 days delinquent...................    $  1,438        3.98%         $  993         1.6%       $  5,889         0.7%
60-89 days delinquent...................         257        0.71%            181         0.3%          3,320         0.4%
90 days or more delinquent..............       1,398        3.87%          1,993         3.2%         21,699         2.4%
                                        -------------- ------------- ------------- ------------- ------------- -------------
   Total delinquencies..................    $  3,093        8.56%        $ 3,167         5.1%       $ 30,908         3.5%
                                        =============  ============= ============  ============= ============= =============
REO (1)                                      $    31        0.09%        $  ----        ----%       $  1,141         0.1%
                                        ============== ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
                                                                               FOR THE YEARS ENDED DECEMBER 31,
                                                                   ---------------------------------------------------------
                                                                          2001                2000               1999
                                                                   -------------------- ------------------ -----------------
                                                                                    (Dollars in thousands)
<S>                                                                      <C>                 <C>                 <C>
Average servicing portfolio (2) ...................................      $ 49,198            $853,001            $867,884
Net losses (3).....................................................           ---                 687               1,288
Percentage of average servicing portfolio.........................            ---%               0.14%               0.15%

</TABLE>

---------

(1)  Includes REO of the Company as well as REO of the securitization trusts
     serviced by the Company; however, excludes private investor REO not
     serviced by the Company.
(2)  Average servicing portfolio balance equals the quarterly average of the
     servicing portfolio computed as the average of the balance at the beginning
     and end of each quarter, except for 2000, in which case July 31, 2000 is
     used as the ending balance. As of July 31, 2000, the Company transferred
     all loans serviced for others to a third party servicer.
(3)  Net losses represent losses realized with respect to disposition of REO.
     For the year ended December 31, 2000, net losses with respect to the
     disposition of REOs is as of July 31, 2000.


LIQUIDITY AND CAPITAL RESOURCES

     The report of the Company's current independent auditors, Hein +
Associates, LLP, accompanying the Company's consolidated statements of net
assets available for liquidation as of December 31, 2001 and 2000, the statement
of financial condition as of March 31, 2000, the related consolidated statements
of changes in net assets for the year ended December 31, 2001 and for the period
April 1, 2000 through December 31, 2000, and operations and cash flows from
January 1, 2000 through March 31, 2000, includes an explanatory paragraph, which
provides that the Company has been named as a defendant in numerous lawsuits
with aggregate claims in excess of $11 billion dollars, and that the Company has
not been able to estimate the amounts expected to be paid to the claimants and
the Company's other creditors, and that because of the significance of such
matters, such auditors were unable to express and did not express an opinion
with respect to such financial statements.

     Further, the Company's former independent auditors, Deloitte & Touche LLP,
have advised the Company that they are not presently willing to reissue their
report on the Company's consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for the year ended December 31, 1999. As a
result, the Company's financial statements for such period included in this
Annual Report on Form 10-K for the year ended December 31, 2001 are not
accompanied by an independent auditors' report. We have included such financial
statements in this Annual Report on Form 10-K solely for historical and
informational purposes, and to attempt to comply with the financial statement
requirements of Regulation S-X with respect to this Report.

                                       24
<PAGE>

     The Company's sources of cash include proceeds from liquidation of assets,
distributions received from residual interests, interest income and loan
servicing income. The Company's source of loan servicing income has been
substantially reduced as a result of the Company's servicing rights portfolio
sale in July 2000. The Company's uses of cash include payments to creditors,
payments of interest, repayment of its warehouse financing facilities,
administrative expenses, and payment of income taxes. All such payments are on a
post petition basis only or unless otherwise approved by the court. As a result
of the Bankruptcy Filing, the closure of the Company's loan origination
operations and the servicing rights portfolio sale, the Company has lost a
significant source of cash flow. As of December 31, 2001, the Company had
unrestricted cash and cash equivalents of $35.3 million.

     In addition to cash flow from its remaining servicing business, interest on
loans and investments, and proceeds from liquidation of assets, the Company
derives a significant amount of cash flow from distribution of its residual
interests (see detailed description of residual interests under "Revenue"
below). Among other factors, the amount of residual interests distribution may
be affected by loan prepayments, delinquencies or losses. In the event of an
increase in loan prepayments, delinquencies or losses, the Company's
distribution from residual interests may be adversely affected. In addition, the
outcome of pending litigation against the Company may also threaten to reduce or
eliminate the level of residual interests distribution. Therefore, there can be
no assurance that the Company will continue to receive the same level of cash
flow from residual interests as it has in the past.

     In connection with the Bankruptcy Filing, it is management's intention to
market for sale and operate pending such sale of all or a significant portion of
the Company's remaining assets. Proceeds from the sale of assets that are
security for the Company's obligations to its secured creditors will first be
used to repay such secured creditors, which include the Company's warehouse
financing facility and a note payable related to the financing of the Company's
telemarketing facility in Irvine, California.

     The Bankruptcy filing may have triggered an event of default under various
agreements entered into by the Company, though the Company contends that they
are not, pursuant to, among other things, 11 USC ss.365(b)(2). Such agreements
include the Company's pooling and servicing agreements. However, in conjunction
with the sale of the servicing rights portfolio, the Company entered into a
"Consent Agreement" with the trustees and bond insurers, whereby the Company
will be deemed to have satisfied the events of default under the Company's
pooling and servicing agreements subject to monetary holdback provisions
contained in the agreement. Included in the Company's restricted cash balance is
approximately $3.3 million in monetary holdbacks related to this transaction.
The Company's ability to recover any portion of the holdback is partially
contingent on the outcome of the Company's liquidating plan of reorganization.

     The Bankruptcy Filing may have created an event of default under the
Company's warehouse financing facility, though the Company contends that they
are not, pursuant to, among other things, 11 USC ss.365(b)(2). Notwithstanding
the pendency of the bankruptcy case, the warehouse lender may be able to
exercise its remedies under the agreement and require the Company to repay the
entire warehouse financing facility. This may force the Company to accelerate
the sale of its loans, which secure the facility, at a price less favorable than
might otherwise be obtained, thereby having a material adverse effect on the
Company's Consolidated Statement of Net Assets Available for Liquidation.

     The Company has experienced a significant increase in legal expenses over
the last two years, which have had a material adverse effect on the Company's
results of operations and financial condition. Such legal expenses have related
to legal settlement agreements, and an increase in attorneys' fees and reserves
for ongoing legal matters. There is no assurance that legal expenses will be
reduced in the future (see Item 3. Legal Proceedings).

    The Company believes that its current cash position coupled with cash
generated from its existing operations will be sufficient to fund its operations
for the next twelve months.


INFLATION

     Although the Company's operations can be influenced by general economic
trends, management does not believe that inflation had a significant impact on
the financial statements presented.

                                       25
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The following information presented reflects the expected cash flows of the
primary categories by year, including the related weighted average interest
rate. The cash flows for loans held for sale are based on the expectancy of
liquidation. The cash flows for residual interests in securities are based on
maturity date and are adjusted for expected prepayments which are based on
historical information. Cash flows for warehouse financing and notes payable are
based on the expectancy of liquidating the assets to repay the financing, and
are also based on the maturity dates. For purposes of cash flow presentation,
premiums or discounts on purchased assets, interest earned or payable,
mark-to-market adjustments and loans on non-accrual are excluded from the
amounts presented. See Item 1. Interest Rate Risk Management, for a discussion
of risk related to hedging.

     The following table provides information as of December 31, 2001 and 2000
with respect to the Company's primary categories of assets and liabilities,
which are sensitive to changes in interest rates:

<TABLE>
<CAPTION>
                                           AS OF DECEMBER 31,           AS OF DECEMBER 31,
                                     ------------------------------------------------------------
                                                  2001                         2000
                                     ------------------------------------------------------------
                                                       (DOLLARS IN THOUSANDS)
                                     ------------------------------------------------------------
<S>                                              <C>                          <C>
ASSETS:
   Loans receivable                              $ 36,135                     $ 57,228
   Average interest rate                             9.70%                        9.72%
   Residual interests in securities              $ 25,102                     $ 37,626
   Average interest rate                            16.86%                       16.86%

LIABILITIES:
   Warehouse financing facility and
     secured term loan                           $ 25,752                     $ 51,486
   Average interest rate                             5.36%                        8.07%
   Notes payable                                 $  3,431                     $  4,532
   Average interest rate                              6.9%                        7.25%
</TABLE>

Note:   Management, based upon the advice of its bankruptcy counsel, believes
        that the overall reorganization/liquidation plan will take approximately
        12 months from December 31, 2001, subject to change depending on the
        outcome of certain litigation proceedings.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Consolidated Financial Statements beginning on Page F-1 of this Annual
Report on Form 10-K.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     CHANGES IN ACCOUNTANTS

     On April 5, 2000, Deloitte & Touche LLP resigned as the Company's
independent auditors. The audit report of Deloitte & Touche LLP on the financial
statements for the two years ended December 31, 1999 and 1998 contained no
adverse opinion or disclaimer of opinion and was not qualified or modified as to
audit scope or accounting principles. Also, for the two years ended December 31,
1999 and 1998 and the subsequent interim period preceding such resignation,
there were no disagreements with Deloitte & Touche LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure or any reportable events.

     On June 22, 2000, the Board of Directors and the Audit Committee of the
Company approved the engagement of Hein + Associates LLP ("Hein") as the
Company's principal independent public accountants. Prior to such appointment,
the Company had not consulted with Hein regarding the application of accounting
principles to a specified transaction or the type of audit opinion that might be
rendered on the Company's financial statements. It is the intention of
management to continue to employ the services of Hein.

                                       26
<PAGE>

     DISCLAIMER OF OPINION ON FINANCIAL STATEMENTS

     The report of the Company's current independent auditors, Hein +
Associates, LLP, accompanying the Company's consolidated statements of net
assets available for liquidation as of December 31, 2001 and 2000, the statement
of financial condition as of March 31, 2000, the related consolidated statements
of changes in net assets for the year ended December 31, 2001 and for the period
April 1, 2000 through December 31, 2000, and operations and cash flows from
January 1, 2000 through March 31, 2000, includes an explanatory paragraph, which
provides that the Company has been named as a defendant in numerous lawsuits
with aggregate claims in excess of $11 billion dollars, and that the Company has
not been able to estimate the amounts expected to be paid to the claimants and
the Company's other creditors, and that because of the significance of such
matters, such auditors were unable to express and did not express an opinion
with respect to such financial statements.

     Further, the Company's former independent auditors, Deloitte & Touche LLP,
have advised the Company that they are not presently willing to reissue their
report on the Company's consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for the year ended December 31, 1999. As a
result, the Company's financial statements for such period included in this
Annual Report on Form 10-K for the year ended December 31, 2001 are not
accompanied by an independent auditors' report. We have included such financial
statements in this Annual Report on Form 10-K solely for historical and
informational purposes, and to attempt to comply with the financial statement
requirements of Regulation S-X with respect to this Report.

                                       27
<PAGE>

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following is a list of the current executive officers and directors of
the Board of Directors of the Company.

<TABLE>
<CAPTION>

                NAME                                         POSITION(S) WITH THE COMPANY
-------------------------------------   ------------------------------------------------------------------------
<S>                                     <C>
Brian Chisick                           Chairman of the Board, Chief Executive Officer, and Director

Merrill Butler                          Director

Thomas Tarter                           Director (APPOINTED SEPTEMBER 7, 2001)

Jerry Hager                             Executive Vice President and General Counsel

</TABLE>

     BACKGROUND OF DIRECTORS

     The age, present position with the Company, and principal occupation during
the past five years of each Director and executive officer named above is set
forth below.

BRIAN CHISICK                       Director since 1996                Age 63

     Mr. Chisick is the Chairman of the Board and Chief Executive Officer of
First Alliance Corporation, and has been since its formation in 1996. He has
also held the same offices at First Alliance Mortgage Company since he founded
it in 1971. Mr. Chisick has held a real estate broker's license since 1971. In
1985, Mr. Chisick was Vice President at the Mortgage Brokers Institute, a
statewide trade association of over 120 mortgage brokers, and served as a member
of the legislative committee of the Mortgage Brokers Institute.

MERRILL BUTLER                      Director since 1996                Age 77

     Mr. Butler has been a director of the Board of the Company since its
formation in 1996, and has served on the Compensation Committee since 1996 and
the Audit Committee since 1999. Since 1983 Mr. Butler has served as President of
Merrill Butler, Inc., a corporation formed to consult with savings and loan
associations on real estate matters and which engages in small residential
construction projects. During 1995 Mr. Butler also served on the Volunteer
Executive Team organized to advise Orange County, California after the County
had declared bankruptcy. Mr. Butler was also a co-creator of the Butler Popejoy
Group, a general partnership that from 1992 to 1994 capitalized home-builders
with equity funds to develop entry level housing projects. Mr. Butler is a past
director of numerous organizations, including the Federal National Mortgage
Association (Fannie Mae), Financial Corporation of America, American Savings and
Loan, The Commodore Corporation, Far Western Bank, National Association of Home
Builders, and the Building Industry Association of Southern California.

THOMAS TARTER                       Director since 2001                Age 59

     Mr. Tarter is serving as a court-approved interim director following the
death of Mr. Daniel Stevenson in August 2001. Mr. Tarter has approximately 24
years' experience in the banking and finance industry, dealing in such areas as
loans, asset/liability management, compensation and incentive programs, and
initial public offerings. In August 1993, he founded a consulting group, which
specializes in providing management and financial advisory services for
institutions primarily involved in financial and banking related matters. Mr.
Tarter has been a guest lecturer and panelist for professional organizations and
institutions of higher learning. He has also been appointed to the panel of
mediators by the United States Bankruptcy Court for the Central District of
California.

                                       28
<PAGE>

JERRY HAGER                           Officer since 1999                  Age 44

     Mr. Hager has been Executive Vice President and General Counsel of the
Company since June 1999. From 1994 to June 1999, Mr. Hager served as Senior
Counsel at the law offices of Buchalter, Nemer, Fields & Younger in Los Angeles,
California. From 1989 to 1994, Mr. Hager served as Senior Counsel at the law
offices of Smith & Smith in Los Angeles, California. Mr. Hager received his
Juris Doctor in 1982 from Pepperdine University School of Law, Malibu,
California, and holds a Bachelor's degree in Political Science with a Minor in
Geography from California State University, Northridge, California. Mr. Hager is
an Adjunct Professor of Law, Pepperdine University School of Law, Malibu,
California, and is a member of the American Bar Association, Consumer Financial
Services Subcommittee, The Orange County Bar Association, Financial Lawyers
Conference, the Bankruptcy Forum, Aircraft Owners & Pilots Association, and
Experimental Aircraft Association.

     Sarah Chisick resigned as a Director on December 21, 2001, and Daniel K.
Stevenson, a former Director, passed away in August 2001. Thomas Tarter has
served as a court-appointed interim Director since September 2001, following the
death of Mr. Stevenson. Francisco Nebot resigned as President, Chief Financial
Officer and Director on September 7, 2001.


     SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Each director, officer and other designated employee of the Company who is
subject to Section 16 of the Act, and each other person who beneficially owns
more than 10% of the Common Stock (collectively the "Reporting Person"), is
required to report to the SEC by a specified date his or her ownership of and
transactions in the Common Stock. Reporting Persons are required to provide
copies of such reports to the Company. Based on the Company's review of the
copies of such forms and amendments it has received and written representations
from certain Reporting Persons, the Company believes that all such forms were
filed on a timely basis during 2001.


ITEM 11.  EXECUTIVE COMPENSATION

     Set forth in the Summary Compensation Table below is certain compensation
information concerning the annual and long-term compensation for services in all
capacities for the Company during 2001 and the preceding two fiscal years of
those persons who were, as of December 31, 2001, (i) the Chief Executive Officer
(ii) each executive officer, and (iii) officers otherwise among the four most
highly compensated (the "Named Officers"), other than the Chief Executive
Officer. Executive Officers are those officers considered Corporate Officers of
the Company.

                                       29
<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                            ANNUAL COMPENSATION     LONG TERM COMPENSATION
                                                        -------------------------- ------------------------
                                                                                    SECURITIES UNDERLYING
                                                         SALARY (1)    BONUS (1)         OPTIONS (2)
NAME AND PRINCIPAL POSITION                    YEAR         ($)            ($)              (#)
-----------------------------------------------------   ------------ ------------- ------------------------
<S>                                            <C>           <C>          <C>             <C>
Brian Chisick (3)                              2001          92,636            --              --
   CHAIRMAN AND CHIEF EXECUTIVE OFFICER        2000         263,333            --              --
                                               1999         395,000            --         200,000

Francisco Nebot (4)                            2001         367,817            --              --
   PRESIDENT AND CHIEF FINANCIAL OFFICER       2000         247,693        25,000              --
   (TERMINATED SEPTEMBER 7, 2001)              1999         236,666       150,000         110,000

Jeffrey W. Smith (4)                           2001              --            --              --
   EXECUTIVE VICE PRESIDENT AND CHIEF          2000         177,845            --              --
   OPERATING OFFICER                           1999         240,000       100,000         143,662
   (TERMINATED MAY 31, 2000)

Jerry Hager                                    2001         153,589        10,000              --
   EXECUTIVE VICE PRESIDENT AND                2000         139,880        10,000              --
   GENERAL COUNSEL                             1999          73,157        50,000          30,000

Faez Kaabi (4)                                 2001         124,191            --              --
   VICE PRESIDENT, CONTROLLER                  2000         124,992         7,500              --
   (TERMINATED MARCH 31, 2001)                 1999         109,330        15,000          29,768

Mark Chisick (4)                               2001              --            --              --
   PRESIDENT, COAST SECURITY MORTGAGE, INC.    2000         111,461            --              --
   (TERMINATED MARCH 27, 2000)                 1999         105,000            --              --

</TABLE>

--------------------
(1)  Amounts shown include amounts earned but deferred at the election of
     executive officers under the Company's 401(k) Plan (the "401(k) Plan"), a
     qualified defined contribution plan under Section 401(k) of the Code. The
     cost of perquisites is not disclosed for any executive officer named in the
     table because the disclosure threshold (the lower of $50,000 or 10% of
     salary plus bonus) was not reached.
(2)  Includes grants made under the Company's 1996 Stock Incentive Plan.
(3)  Mr. Chisick has waived compensation for his services since June 2001.
(4)  Includes severance pay-out.


     STOCK OPTION GRANTS IN 2001

     The Company did not grant any shares under the Stock Incentive Plan in
2001.


     AGGREGATED OPTION EXERCISES IN 2001; OPTIONS OUTSTANDING AND VALUES AT
     DECEMBER 31, 2001

    No options were exercised during 2001. The value of the unexercised options
as of December 31, 2001 was $0.00 based upon recent market prices. The value of
the options based upon the proposed settlement would also be zero.

                                       30
<PAGE>

     COMPENSATION OF DIRECTORS

     The non-employee directors of the Company or its subsidiaries receive an
annual retainer fee of $15,000 and a fee of $1,000 for each Board meeting
attended, and are reimbursed for reasonable expenses incurred in connection with
attendance at Board of Directors' meetings or Committee meetings. A meeting fee
of $500 is paid to non-employee directors for telephonic meetings of 30 minutes
or less. Committee chairs also receive an annual retainer of $1,500. In
addition, Mr. Tarter may be compensated up to $200 per hour for services
provided to the Company that are beyond the scope of his responsibilities as a
director. Directors who are employees of the Company or its subsidiaries do not
receive fees for their services as directors.


     COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

     The Compensation Committee (the "Compensation Committee"), composed of a
total of five directors (two seats vacant), two of whom are non-employee
directors, makes recommendations to the Board of Directors (the "Board")
regarding the administration of compensation for Executive Officers (the
"Executives") and the terms and conditions of their employment. Currently, the
members of the Compensation Committee are Merrill Butler (Chairman), Thomas
Tarter and Brian Chisick.


     AUDIT COMMITTEE

     The Board of Directors has an Audit Committee (the "Audit Committee"),
which reports to the Board regarding the appointment of the Company's
independent public accountants, the scope and fees of the prospective annual
audit and the results thereof, compliance with the Company's accounting and
financial policies, and management's procedures and policies relative to the
adequacy of the Company's system of internal accounting controls. Currently, the
members of the Audit Committee are Thomas Tarter (Chairman), Merrill Butler and
Brian Chisick.


     OVERALL POLICY

     The Committee and the Board believe that the Company's executive
compensation program should be designed to be linked closely to the Executive's
success in meeting specified performance goals and to appreciation in the
Company's stock price thereby creating value for stockholders. The overall
objectives are to retain the best executive talent, to motivate these executives
to achieve goals that will advance the Company's business strategies, to link
executive and stockholder interests through equity based plans, and to provide a
compensation package that recognizes individual contributions as well as overall
business results.

     Historically, the Committee conducted a review of the compensation of each
of the Company's executive officers, taking into account the detailed
performance reviews and recommendations of Mr. Chisick (except with respect to
Mr. Chisick's own performance).

     The key elements of the Company's executive compensation program consist of
a base salary and an annual bonus including stock options. The Committee's
policies with respect to these elements, including the basis for the
compensation paid and awarded to Mr. Chisick, the Company's Chairman and Chief
Executive Officer, are discussed below. In addition, while the elements of
compensation described below are considered separately, the Committee takes into
account the full compensation package afforded by the Company to the individual.
In the case of Mr. Chisick, such compensation and benefits are specified in an
employment contract entered into between said individual and the Company prior
to the formation of the Committee. See "Brian Chisick Agreement" on page below.

                                       31
<PAGE>

     BASE SALARIES

     Historically, in reviewing base salaries for new executive officers, the
Committee would evaluate the responsibilities of the position to be held and the
experience of the individual, and would also refer to the competitive
marketplace for executive talent, including a comparison to base salaries for
comparable positions at other companies.

     Annual salary adjustments were not usually part of the Company's executive
compensation program, consistent with the Company's historical practice of
rewarding superior performance through annual bonus incentives.

     In light of the Bankruptcy Filing, the Committee, along with the Creditors'
Committee, awarded significantly lower bonuses to its executives in 2001 as
compared to prior years.

     Mr. Chisick continued to receive compensation through June 30, 2001 at the
same rate as in 2000. From June 30, 2001 forward, Mr. Chisick has received no
salary.


     COMPENSATION AND AUDIT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     There are currently no "interlocks" (within the meaning of the Securities
and Exchange Commission's Proxy rules) with respect to any member of the
Committees during 2001. "Interlocks" means that it was not the case that an
executive officer of the Company served as a director or member of the
Compensation or Audit Committees of another entity and as executive officer of
the other entity served as a director or member of the Compensation or Audit
Committees of the Company. Mr. Chisick, a member of both Committees, is also the
Chairman and Chief Executive Officer of the Company, and has certain
relationships requiring disclosure under Item 404 of Regulation S-K, each of
which is described under "Certain Transactions."


EMPLOYMENT AGREEMENTS

     The Company entered into an employment agreement with Mr. Chisick dated
July 1, 1996 providing for an initial term of three years, subject to automatic
three-year renewal unless either party provides notice of an intention not to
renew. Provided under this Agreement, Mr. Chisick was to receive an annual
salary of $495,000, subject to annual increases (but not decreases) and bonuses
as may be determined by the Board of Directors, as well as certain other
benefits including medical, insurance, death and disability benefits, use of an
automobile and reimbursement of employment related expenses. Mr. Chisick has
waived monetary compensation for his services since June 30, 2001, but still
receives reimbursement for automobile and employment-related expenses, as well
as medical, insurance and death and disability benefits.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     BENEFICIAL OWNERSHIP OF COMMON STOCK

     "Beneficial ownership," indicates that the person shown, directly or
indirectly, has or shares with others the power to vote (or to direct the voting
of) or the power to dispose of (or to direct the disposition of) such shares; he
or she may or may not have any economic interest in the shares. The reporting of
information herein does not constitute an admission that any such person is, for
the purpose of Sections 13 or 16 of the Securities Exchange Act of 1934 (the
"Act"), as amended, the "beneficial owner" of the shares shown herein.

     The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of March 28, 2002, by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Company's Common Stock, (ii) each director of the
Company, and (iii) all directors and officers named in the SUMMARY COMPENSATION
TABLE. Share amounts and percentage calculations set forth below are based upon
outstanding shares net of shares held by the Company as treasury stock.

                                       32
<PAGE>
<TABLE>
<CAPTION>
                                                                      BENEFICIAL OWNERSHIP OF
                                                                           COMMON STOCK
                                                       ------------------------------------------------------
                                                                                            PERCENT OF
                                                                                              CLASS A
                                                                NUMBER OF                  COMMON STOCK
                     NAME OF BENEFICIAL                        SHARES (1)                   OUTSTANDING
                       OWNER OR GROUP                              (#)                          (%)
       ----------------------------------------------- ----------------------------    ----------------------

       <S>                                                      <C>                             <C>
       Brian and Sarah Chisick Trust (9)                        14,459,230  (2)                 80

       Francisco Nebot, DIRECTOR, PRESIDENT,                         2,000                               (3)
          AND CHIEF FINANCIAL OFFICER (4)

       Jeffrey W. Smith, DIRECTOR, EXECUTIVE                             0
          VICE PRESIDENT & CHIEF OPERATING
          OFFICER (5)

       Merrill Butler, DIRECTOR                                     65,625                               (3)

       Thomas Tarter, DIRECTOR                                           0

       Daniel K. Stevenson, DIRECTOR (6)                                 0

       Jerry Hager, EXECUTIVE VICE PRESIDENT
       AND GENERAL COUNSEL                                          17,500                               (3)

       Faez Kaabi, VICE PRESIDENT AND
          CONTROLLER (7)                                                 0

       Mark Chisick, PRESIDENT, COAST SECURITY
          MORTGAGE, INC. (8)                                             0

       All Directors, Executive Officers and Named
       Officers as a Group
          (10 PERSONS)                                          14,544,355

</TABLE>
------------------
(1)  Unless otherwise indicated and subject to community property laws where
     applicable, each of the stockholders named in this table has sole voting
     and investment power with respect to the shares shown as beneficially
     owned by him or her. Beneficial ownership is determined in accordance with
     the rules of the SEC. In computing the number of shares beneficially owned
     by a person and the percentage ownership of that person's shares of Common
     stock that can be acquired by such person within 60 days from March 28,
     2002 upon the exercise of options and warrants are deemed outstanding.
     Each beneficial owner's percentage ownership is determined by assuming
     that options that are held by such person (but not those held by any other
     person) and that are exercisable within 60 days from March 28, 2002 have
     been exercised.
(2)  Includes: 265,563 shares with respect to which options are exercisable
     within 60 days from March 28, 2002 and includes 14,168,800 shares held by
     the Brian and Sarah Chisick Revocable Trust U/A 3-7-79, of which the
     Chisicks are the trustees; of which 2,222,600 shares (the "Escrow Shares")
     are held in escrow pending (i) the evaluation by the Company of the
     opportunity of the Company to purchase such stock and (ii) the review of
     the transaction by the U. S. Bankruptcy Court. The Schedule 13(d)
     (Amendment No. 5) filed on March 21, 2001 by Brian and Sarah Chisick
     states that the Escrow Shares will not be voted by the Chisicks pending

                                       33
<PAGE>

     the resolution by the U.S. Bankruptcy Court of certain matters related to
     the Company's opportunity to purchase the Escrow Shares. Also includes a
     total of 24,867 shares held by grantor trusts established for the benefit
     of four of the Chisicks' grandchildren, of which trusts Mr. Chisick is the
     sole trustee.
(3)  Less than 1%.
(4)  Mr. Nebot's employment was terminated on September 7, 2001.
(5)  Mr. Smith's employment was terminated on May 31, 2000.
(6)  Mr. Stevenson passed away on August 23, 2001.
(7)  Mr. Kaabi's employment was terminated on March 31, 2001.
(8)  Mark Chisick's employment was terminated on March 27, 2000.
(9)  Mr. Chisick is a director of the Company. Mrs. Chisick resigned as a
     director on December 21, 2001.

     On July 12, 2000 the Company terminated its 401(k) Plan as a result of the
Company's Bankruptcy filing. Before the termination of such Plan, the Company's
401(k) Plan owned a total of 312 shares of the Company's Common Stock on
December 31, 2000. Although the Company was the Administrator of the 401(k)
Plan, the 401(k) Plan was established and administered to achieve the purposes
for which it was created for the exclusive benefit of its participants, and
employees participating in the 401(k) Plan were entitled to vote all shares
allocated to their accounts. Accordingly, the 401(k) Plan did not constitute a
"group" within the meaning of Section 13(d) of the Securities and Exchange Act
of 1934, as amended.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     BUSINESS RELATIONSHIP WITH FINANCIAL SERVICES FOR COLUMBUSNEWPORT

     Donald Kasle served as a director of the Company from May 1999 until
January 23, 2001. Since late 1999, Financial Services for ColumbusNewport
("Financial Services") provided FAMCO with consulting services. Financial
Services received approximately $110,400 for services rendered in 1999 and 2000.
No payments were made to Financial Services in 2001.


     BUSINESS RELATIONSHIP WITH MANAGEMENT ACTION PROGRAM, INC. ("MAP")

     Daniel Stevenson was Chairman of the Board of MAP. From May 1981 to March
2000, First Alliance Mortgage Company, a California corporation ("FAMCO"),
maintained a business consulting relationship with MAP. In 2000, MAP received
approximately $6,675 from FAMCO for consulting services. No payments were made
to MAP in 2001.


     BUSINESS RELATIONSHIP WITH MJB ASSOCIATES, INC.

     The Company leased its former corporate headquarters, located at 17305 Von
Karman Avenue, Irvine, California 92614-6203, from MJB Associates, Inc., a
California Limited Partnership ("MJB"). MJB is owned by Brian and Sarah Chisick,
the majority stockholders of the Company. In 2000 MJB received from the Company
rental income of approximately $568,836. In December 2000, the Company
terminated this lease and entered into a one year sublease arrangement
commencing on January 1, 2001 to occupy 4,000 square feet of the same building
with a non-related third party. This sublease has been extended on a
month-to-month basis. In 2001, MJB received $21,651 in rental income prior to
the lease change.

                                       34
<PAGE>

                   FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Independent Auditors' Report.............................................    F-1

Consolidated Statement of Net Assets Available for Liquidation
       As of December 31, 2001...........................................    F-2

Consolidated Statement of Net Assets Available for Liquidation
       As of December 31, 2000...........................................    F-3

Consolidated Statement of Financial Condition
       As of March 31, 2000..............................................    F-4

Consolidated Statement of Change in Net Assets
       For the year ended December 31, 2001..............................    F-5

Consolidated Statement of Change in Net Assets
       For the period from April 1, 2000 through December 31, 2000.......    F-6

Consolidated Statement of Operations
       For the three month period ended March 31, 2000...................    F-7

Consolidated Statement of Operations
       For the year ended December 31, 1999 .............................    F-8

Consolidated Statement of Comprehensive Loss
       For the three month period ended March 31, 2000...................    F-9

Consolidated Statement of Comprehensive Income
       For the year ended December 31, 1999 .............................   F-10

Consolidated Statement of Stockholders' Equity
       For the three months ended March 31, 2000.........................   F-11

Consolidated Statement of Stockholders' Equity
       For the year ended December 31, 1999 .............................   F-12

Consolidated Statement of Cash Flows
       For the three months ended March 31, 2000.........................   F-13

Consolidated Statement of Cash Flows
       For the year ended December 31, 1999 .............................   F-15

Notes to Consolidated Financial Statements...............................   F-17


<PAGE>

INDEPENDENT AUDITORS' REPORT
----------------------------




To the Board of Directors and Stockholders of
First Alliance Corporation
Irvine, California


We were engaged to audit the accompanying consolidated statements of net assets
available for liquidation of First Alliance Corporation and subsidiaries (the
"Company") as of December 31, 2001 and 2000, the statement of financial
condition as of March 31, 2000, the related consolidated statements of changes
in net assets for the year ended December 31, 2001 and the period from April 1,
2000 through December 31, 2000, and the statements of operations and cash flows
for the period from January 1, 2000 through March 31, 2000. These financial
statements are the responsibility of the Company's management.

As discussed in Note 9 to the financial statements, the Company has been named
as a defendant in numerous lawsuits with aggregate claims in excess of $11
billion. The Company has not been able to estimate the amounts expected to be
paid to the plaintiffs and other creditors in these matters.

Because of the significance of the matter described in the preceding paragraph,
we were unable to express, and we do not express, an opinion on the financial
statements referred to in the first paragraph.


/S/ HEIN + ASSOCIATES LLP

Hein + Associates LLP
Certified Public Accountants


Orange, California
February 22, 2002


                                      F-1
<PAGE>

                   FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

         CONSOLIDATED STATEMENT OF NET ASSETS AVAILABLE FOR LIQUIDATION

                           (DOLLARS IN THOUSANDS)
                                                                    DECEMBER 31,
                                                                        2001
                                                                    ------------
ASSETS
     Cash and cash equivalents ..................................      $ 35,290
     Restricted cash ............................................         3,346
     Loans receivable ...........................................        33,030
     Residual interests in securities ...........................        25,102
     Property, net ..............................................         4,739
     Prepaid expenses and other assets ..........................         1,084
                                                                       ---------
        Total assets ............................................      $102,591
                                                                       ---------

LIABILITIES
     Warehouse financing facilities .............................      $ 25,752
     Reserve for estimated costs during the period of liquidation        12,964
     Accrued contingent liabilities .............................         3,204
     Accounts payable and accrued liabilities ...................        13,634
     Income taxes payable .......................................           609
     Notes payable ..............................................         3,431
                                                                       ---------
        Total liabilities .......................................      $ 59,594
                                                                       ---------

NET ASSETS AVAILABLE FOR LIQUIDATION ............................      $ 42,997
                                                                       =========


                 See notes to consolidated financial statements.

                                      F-2
<PAGE>

                   FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

         CONSOLIDATED STATEMENT OF NET ASSETS AVAILABLE FOR LIQUIDATION

                             (DOLLARS IN THOUSANDS)


                                                                    DECEMBER 31,
                                                                        2000
                                                                    ------------
ASSETS
     Cash and cash equivalents ..................................      $ 21,147
     Restricted cash ............................................         7,118
     Loans receivable ...........................................        57,228
     Residual interests in securities ...........................        37,626
     Property, net ..............................................         6,180
     Income taxes receivable ....................................         4,981
     Prepaid expenses and other assets ..........................         1,535
                                                                       ---------
        Total assets ............................................      $135,815
                                                                       ---------

LIABILITIES
     Warehouse financing facilities .............................      $ 51,486
     Reserve for estimated costs during the period of liquidation         9,902
     Accrued contingent liabilities .............................         7,459
     Accounts payable and accrued liabilities ...................         7,306
     Income taxes payable .......................................           948
     Notes payable ..............................................         4,532
                                                                       ---------
        Total liabilities .......................................      $ 81,633
                                                                       ---------

NET ASSETS AVAILABLE FOR LIQUIDATION ............................      $ 54,182
                                                                       =========


                 See notes to consolidated financial statements.

                                      F-3
<PAGE>
<TABLE>

                        FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

                       (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>

                                                                                            MARCH 31,
                                                                                              2000
                                                                                           ----------
                                           ASSETS
<S>                                                                                        <C>
Cash and cash equivalents ...........................................................      $   9,320
Restricted cash .....................................................................          3,309
Receivable from trusts ..............................................................          3,635
Loans held for sale, net ............................................................         80,917
Loans receivable held for investment ................................................            714
Residual interests in securities - at fair value ....................................         44,763
Mortgage servicing rights ...........................................................          7,562
Property, net .......................................................................          6,872
Deferred taxes ......................................................................          6,784
Prepaid expenses and other assets ...................................................          1,769
                                                                                           ----------
    Total assets ....................................................................      $ 165,645
                                                                                           ==========

                            LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse financing facility ........................................................      $  76,268
Reserve for estimated costs during the period of liquidation ........................          7,685
Accrued contingent liabilities ......................................................          8,111
Accounts payable and accrued liabilities ............................................          3,142
Notes payable .......................................................................          4,603
                                                                                           ----------
    Total liabilities ...............................................................         99,809
                                                                                           ----------

Commitments and contingencies (Notes 1 and 9)

Stockholders' equity:
Preferred Stock, $0.01 par value; 1,000,000 shares authorized:  no shares outstanding             --
Common Stock, $0.01 par value; 75,000,000 shares authorized; shares issued and
    outstanding:  22,186,288 at March 31, 2000 ......................................            223
Additional paid in capital ..........................................................         67,307
Retained earnings ...................................................................         50,639
Treasury stock - at cost:  4,321,500 shares at March 31, 2000 .......................        (52,333)
                                                                                           ----------
    Total stockholders' equity ......................................................         65,836
                                                                                           ----------
    Total liabilities and stockholders' equity ......................................      $ 165,645
                                                                                           ==========
</TABLE>


                 See notes to consolidated financial statements.

                                      F-4
<PAGE>

                   FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF CHANGE IN NET ASSETS

                             (DOLLARS IN THOUSANDS)


                                                                FOR YEAR ENDED
                                                                 DECEMBER 31,
                                                                     2001
                                                                ---------------
  REVENUE:
   Loan origination and sale ..............................        $  1,912
   Interest ...............................................          11,233
   Loan servicing and other ...............................           1,490
                                                                   ---------
     Total revenue ........................................          14,635
                                                                   ---------

EXPENSE:
   Compensation and benefits ..............................           2,592
   Professional services and other fees ...................           1,417
   Facilities and insurance ...............................           1,010
   Supplies ...............................................             100
   Interest ...............................................           2,459
   Legal ..................................................          11,715
   Travel and training ....................................              16
   Liquidation costs ......................................           3,062
   Adjustment to liquidation basis ........................           3,380
   Other ..................................................              60
                                                                   ---------
     Total expense ........................................          25,811
                                                                   ---------

LOSS BEFORE INCOME TAX PROVISION ..........................         (11,176)

INCOME TAX PROVISION ......................................               9
                                                                   ---------

CHANGE IN NET ASSETS ......................................        $(11,185)
                                                                   =========

NET ASSETS AT DECEMBER 31, 2000 ...........................        $ 54,182
                                                                   =========

NET ASSETS AT DECEMBER 31, 2001 ...........................        $ 42,997
                                                                   =========

                 See notes to consolidated financial statements.

                                      F-5
<PAGE>

                   FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF CHANGE IN NET ASSETS

                             (DOLLARS IN THOUSANDS)


                                                             FOR THE PERIOD FROM
                                                              APRIL 1, 2000 TO
                                                              DECEMBER 31, 2000
                                                             -------------------
  REVENUE:
   Loan origination and sale ..............................        $  1,321
   Interest ...............................................          11,208
   Loan servicing and other ...............................           1,499
                                                                   ---------
     Total revenue ........................................          14,028
                                                                   ---------

EXPENSE:
   Compensation and benefits ..............................           4,806
   Advertising ............................................            (110)
   Professional services and other fees ...................           1,615
   Facilities and insurance ...............................           1,324
   Supplies ...............................................             140
   Depreciation and amortization ..........................             514
   Interest ...............................................           5,843
   Legal ..................................................           4,660
   Travel and training ....................................               5
   Liquidation costs ......................................           2,218
   Adjustment to liquidation basis ........................          (1,231)
   Other ..................................................             160
                                                                   ---------
     Total expense ........................................          19,944
                                                                   ---------

LOSS BEFORE INCOME TAX PROVISION ..........................          (5,916)

INCOME TAX PROVISION ......................................           5,738
                                                                   ---------

CHANGE IN NET ASSETS ......................................        $(11,654)
                                                                   =========

NET ASSETS AT APRIL 1, 2000 ...............................        $ 65,836
                                                                   =========

NET ASSETS AT DECEMBER 31, 2000 ...........................        $ 54,182
                                                                   =========

                 See notes to consolidated financial statements.

                                      F-6
<PAGE>

                   FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

                 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)


                                                               FOR THE PERIOD
                                                            FROM JANUARY 1, 2000
                                                                TO MARCH 31,
                                                                    2000
                                                            --------------------
REVENUE:
    Loan origination and sale .............................      $      1,312
    Interest ..............................................             3,169
    Loan servicing and other fees .........................             1,121
                                                                 -------------
      Total revenue .......................................             5,602
                                                                 -------------

EXPENSE:
    Compensation and benefits .............................             5,877
    Advertising ...........................................             1,798
    Professional services and other fees ..................               650
    Facilities and insurance ..............................               828
    Supplies ..............................................               385
    Depreciation and amortization .........................               433
    Interest ..............................................             1,840
    Legal .................................................             2,762
    Travel and training ...................................               134
    Other .................................................               202
    Liquidation costs .....................................             7,685
    Adjustment to liquidation basis .......................             5,339
                                                                 -------------
      Total expense .......................................            27,933
                                                                 -------------

LOSS BEFORE INCOME TAX BENEFIT ............................           (22,331)

INCOME TAX BENEFIT ........................................            (7,816)
                                                                 -------------

NET LOSS ..................................................      $    (14,515)
                                                                 =============

NET LOSS PER SHARE:
    Basic .................................................      $      (0.81)
                                                                 =============
    Diluted ...............................................      $      (0.81)
                                                                 =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
    Basic .................................................        17,904,223
    Diluted ...............................................        17,904,223


                 See notes to consolidated financial statements.

                                      F-7
<PAGE>

                   FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

                 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)


                                                                  FOR YEAR ENDED
                                                                   DECEMBER 31,
                                                                        1999
                                                                  --------------

REVENUE:
    Loan origination and sale ............................         $    53,527
    Interest .............................................              14,024
    Loan servicing and other fees ........................               2,388
                                                                   ------------
      Total revenue ......................................              69,939
                                                                   ------------

EXPENSE:
    Compensation and benefits ............................              22,864
    Advertising ..........................................               7,193
    Professional services and other fees .................               2,839
    Facilities and insurance .............................               5,258
    Supplies .............................................               1,782
    Depreciation and amortization ........................               2,448
    Interest .............................................              11,180
    Legal ................................................               7,230
    Travel and training ..................................               1,331
    Other ................................................               1,436
                                                                   ------------
      Total expense ......................................              63,561
                                                                   ------------

INCOME BEFORE INCOME TAX PROVISION .......................               6,378

INCOME TAX PROVISION .....................................               2,550
                                                                   ------------

NET INCOME ...............................................         $     3,828
                                                                   ============

NET INCOME PER SHARE:
    Basic ................................................         $      0.21
                                                                   ============
    Diluted ..............................................         $      0.21
                                                                   ============

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
    Basic ................................................          18,110,214
    Diluted ..............................................          18,124,202


                 See notes to consolidated financial statements.

                                      F-8
<PAGE>

                   FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

                  CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS

                             (DOLLARS IN THOUSANDS)


                                                               FOR THE PERIOD
                                                            FROM JANUARY 1, 2000
                                                                TO MARCH 31,
                                                                    2000
                                                            --------------------

NET LOSS ...............................................           $(14,515)

OTHER COMPREHENSIVE INCOME .............................                 --
                                                                   ---------

COMPREHENSIVE LOSS .....................................           $(14,515)
                                                                   =========


                 See notes to consolidated financial statements.

                                      F-9
<PAGE>
<TABLE>

                   FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                             (DOLLARS IN THOUSANDS)
<CAPTION>


                                                                            YEAR ENDED
                                                                         DECEMBER 31, 1999
                                                                         -----------------

<S>                                                                          <C>
NET INCOME.................................................................  $  3,828

OTHER COMPREHENSIVE INCOME
    Foreign currency translation adjustment net of income taxes of  $1,140.    (1,710)
    Less:  Reclassification adjustment for realized foreign currency
      Transaction loss, net of income taxes of $1,592......................     2,388
                                                                             ---------

COMPREHENSIVE INCOME.......................................................  $  4,506
                                                                             =========

</TABLE>

                 See notes to consolidated financial statements.

                                      F-10
<PAGE>
<TABLE>

                                  FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

                                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                            (DOLLARS IN THOUSANDS)

                                                                                                            ACCUMULATED    TOTAL
                         CLASS A        CLASS B        ADDITIONAL                               DEFERRED       OTHER       STOCK-
                       COMMON STOCK   COMMON STOCK      PAID IN   RETAINED    TREASURY STOCK     STOCK     COMPREHENSIVE   HOLDERS'
                     SHARES   AMOUNT SHARES   AMOUNT    CAPITAL   EARNINGS   SHARES     AMOUNT COMPENSATION    INCOME      EQUITY
                   ---------- ------ ------ --------- --------- ---------- ---------- --------- ------------ ------------ ----------
<S>                <C>        <C>           <C>       <C>       <C>        <C>        <C>       <C>          <C>          <C>
Balance at
December 31, 1999. 22,186,288 $ 223      -- $   --    $ 65,813  $  65,154  4,237,000  $(52,085) $     ---    $      ---   $  79,105

Net loss...........                                               (14,515)                                                  (14,515)

Issuance of stock
warrants...........                                      1,494                                                                1,494

Purchase of
treasury stock.....                                                           84,500      (248)                                (248)
                   ---------- ------ ------ --------- --------- ---------- ---------- --------- ------------ ------------ ----------
Balance at
March 31, 2000.... 22,186,288 $  223     -- $   --    $ 67,307  $  50,639  4,321,500  $(52,333) $     ---    $      ---   $  65,836
                   ========== ====== ====== ========= ========= ========== ========== ========= ============ ============ ==========
</TABLE>


                                See notes to consolidated financial statements.

                                                     F-11
<PAGE>
<TABLE>

                                  FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

                                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                            (DOLLARS IN THOUSANDS)

                                                                                                             ACCUMULATED    TOTAL
                         CLASS A        CLASS B      ADDITIONAL                                  DEFERRED       OTHER       STOCK-
                       COMMON STOCK   COMMON STOCK     PAID IN   RETAINED    TREASURY STOCK        STOCK     COMPREHENSIVE  HOLDERS'
                     SHARES   AMOUNT SHARES   AMOUNT   CAPITAL   EARNINGS   SHARES     AMOUNT   COMPENSATION    INCOME      EQUITY
                   ---------- ------ ------ --------- --------- ---------- ---------- --------- ------------ ------------ ----------
<S>                <C>        <C>           <C>       <C>       <C>        <C>        <C>       <C>          <C>          <C>
Balance at
December 31, 1998. 22,186,288 $  223    --  $   --    $ 65,298  $  61,326  4,046,800  $(51,582) $     ---    $    (678)   $  74,587

Net income........                                                  3,828                                                     3,828

Issuance of stock
warrants..........                                         515                                                                  515

Purchase of
treasury stock....                                                           190,200      (503)                                (503)

Foreign currency
translation
adjustment........                                                                                                 678          678
                   ---------- ------ ------ --------- --------- ---------- ---------- --------- ------------ ------------ ----------
Balance at
December 31, 1999. 22,186,288 $  223    --  $   --    $ 65,813  $  65,154  4,237,000  $(52,085) $     ---    $     ---    $  79,105
                   ========== ====== ====== ========= ========= ========== ========== ========= ============ ============ ==========
</TABLE>

                                See notes to consolidated financial statements.

                                                     F-12
<PAGE>
<TABLE>

                   FIRST ALLIANCE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<CAPTION>

                                                                          FOR THE PERIOD
                                                                       FROM JANUARY 1, 2000
                                                                           TO MARCH 31,
                                                                               2000
                                                                       --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                          <C>
Net loss ..............................................................      $(14,515)
Adjustments to reconcile net loss to net cash used in operating
  activities:
     Accretion of residual interests in securities ....................        (1,492)
     Collection of residual interests in securities ...................         4,951
     Deferred income taxes ............................................        (6,784)
     Amortization of mortgage servicing rights ........................         1,111
     Amortization of debt issuance costs ..............................           574
     Amortization of goodwill .........................................            79
     Depreciation and amortization ....................................           354
     Provision for loan losses ........................................            42
     Reserve for estimated costs during the period of liquidation .....         7,685
     Adjustment to liquidation basis ..................................         5,339
  Changes in assets and liabilities:
     Receivable from trusts ...........................................           (28)
     Loans held for sale ..............................................       (61,565)
     Prepaid expenses and other assets ................................           302
     Accounts payable and accrued liabilities .........................          (329)
     Accrued contingent liabilities ...................................          (260)
     Income taxes payable .............................................        (3,631)
                                                                             ---------
       Net cash used in operating activities ..........................       (68,167)
                                                                             ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash deposited for restricted cash ....................................          (661)
Capital expenditures ..................................................           (32)
Collections on loans receivable held for investment ...................           305
Proceeds from sale of loan portfolio ..................................           914
                                                                             ---------
       Net cash provided by investing activities ......................           526
                                                                             ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on warehouse financing facilities ......................        62,146
Purchase of treasury stock ............................................          (248)
Net repayments on notes payable .......................................           (23)
                                                                             ---------
       Net cash provided by financing activities ......................        61,875
                                                                             ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS .............................        (5,766)
CASH AND CASH EQUIVALENTS, beginning of period ........................        15,086
                                                                             ---------
CASH AND CASH EQUIVALENTS, end of period ..............................      $  9,320
                                                                             =========
</TABLE>

                 See notes to consolidated financial statements.

                                      F-13
<PAGE>
<TABLE>

                   FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

               CONSOLIDATED STATEMENT OF CASH FLOWS - (CONTINUED)

                             (DOLLARS IN THOUSANDS)

<CAPTION>

                                                                           FOR THE PERIOD
                                                                        FROM JANUARY 1, 2000
                                                                            TO MARCH 31,
                                                                                2000
                                                                        --------------------
SUPPLEMENTAL INFORMATION:
<S>                                                                          <C>
Interest paid .........................................................      $1,021
                                                                             =======
Income taxes paid .....................................................      $2,604
                                                                             =======

SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING
     AND FINANCING ACTIVITIES:
Transfer of loans held for sale to loans receivable held for investment      $  430
                                                                             =======
Stock warrants issued as debt issuance costs ..........................      $1,494
                                                                             =======
</TABLE>

                 See notes to consolidated financial statements.

                                      F-14
<PAGE>
<TABLE>

                             FIRST ALLIANCE CORPORATION AND SUBSIDIARIES
                                CONSOLIDATED STATEMENT OF CASH FLOWS
                                       (DOLLARS IN THOUSANDS)
<CAPTION>

                                                                                                 YEAR ENDED
                                                                                             DECEMBER 31, 1999
                                                                                             -----------------
<S>                                                                                              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................................      $  3,828
Adjustments to reconcile net income to net cash provided by operating activities:
     Capitalized residual interests and mortgage servicing rights .........................       (19,303)
     Accretion of residual interests in securities ........................................        (4,507)
     Collection of residual interests in securities .......................................        19,552
     Deferred income taxes ................................................................        (7,829)
     Amortization of mortgage servicing rights ............................................         6,116
     Amortization of debt issuance costs ..................................................         2,716
     Amortization of goodwill .............................................................           157
     Depreciation and amortization ........................................................         2,291
     Recognition of deferred fees on loans receivable held for investment .................          (796)
     Provision for loan losses ............................................................           492
     Loss on sales of property ............................................................            42
     Gain on sale of United Kingdom loan portfolio ........................................        (1,267)
  Changes in assets and liabilities:
     Receivable from trusts ...............................................................           970
     Loans held for sale ..................................................................         3,130
     Prepaid expenses and other assets ....................................................           (68)
     Accounts payable and accrued liabilities .............................................          (849)
     Accrued contingent liabilities .......................................................         5,261
     Income taxes payable .................................................................         2,489
                                                                                                 ---------
       Net cash provided by operating activities ..........................................        12,425
                                                                                                 ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash deposited for restricted cash ........................................................        (1,367)
Capital expenditures ......................................................................          (288)
Collections on loans receivable held for investment .......................................        13,663
Proceeds from sale of United Kingdom loan portfolio .......................................        44,156
Proceeds from sales of property ...........................................................            70
Cash paid for acquisition, less cash acquired .............................................        (2,641)
                                                                                                 ---------
       Net cash provided by investing activities ..........................................        53,593
                                                                                                 ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on warehouse financing facilities ..........................................        (3,417)
Repayment of secured term loan facility ...................................................       (64,720)
Repayments of other borrowings ............................................................        (6,545)
Purchase of treasury stock ................................................................          (503)
Net borrowings on notes payable ...........................................................         3,612
                                                                                                 ---------
       Net cash used in financing activities ..............................................       (71,573)
                                                                                                 ---------
Effect of exchange rate changes on cash ...................................................         2,589
                                                                                                 ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS .................................................        (2,966)
CASH AND CASH EQUIVALENTS, beginning of period ............................................        18,052
                                                                                                 ---------
CASH AND CASH EQUIVALENTS, end of period ..................................................      $ 15,086
                                                                                                 =========
</TABLE>

                           See notes to consolidated financial statements.

                                                F-15
<PAGE>
<TABLE>

                   FIRST ALLIANCE CORPORATION AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)

                             (DOLLARS IN THOUSANDS)
<CAPTION>


                                                                               YEAR ENDED
                                                                           DECEMBER 31, 1999
                                                                           -----------------
<S>                                                                              <C>
SUPPLEMENTAL INFORMATION:
Interest paid .............................................................      $ 9,815
                                                                                 ========
Income taxes paid .........................................................      $ 7,803
                                                                                 ========

SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING
     AND FINANCING ACTIVITIES:
Transfer of loans held for sale to loans receivable held for investment ...      $ 1,320
                                                                                 ========
Transfer of loans held for investment to real estate owned ................      $    55
                                                                                 ========
Stock warrants issued as debt issuance costs ..............................      $   515
                                                                                 ========
Transfer of loans held for sale to real estate owned ......................      $   189
                                                                                 ========
Notes payable issued in connection with Coast Security Mortgage
     acquisition ..........................................................      $ 1,000
                                                                                 ========


DETAIL OF BUSINESS ACQUIRED IN PURCHASE BUSINESS COMBINATION (Note 1):

     On July 2, 1999, the Company acquired the net assets of Coast Security
Mortgage. A summary of the transaction is as follows:

Cash paid .................................................................      $ 3,085
Note issued ...............................................................        1,000
Fair market value of tangible and identifiable assets acquired (1) ........       (1,312)
Fair market value of liabilities assumed ..................................          403
                                                                                 --------
Excess of cost over identifiable assets acquired (goodwill) ...............      $ 3,176
                                                                                 ========
</TABLE>

----------------

(1)  Includes cash acquired of $444.

                 See notes to consolidated financial statements.

                                      F-16
<PAGE>

NOTE 1.  COMPANY OVERVIEW

     The Company was a financial services organization principally engaged in
mortgage loan origination, purchases, sales and servicing. The majority of the
Company's loans were made to owners of single family residences who use the loan
proceeds for such purposes as debt consolidation and financing of home
improvements. The Company generally securitized the loans in a trust or sold
loans to wholesale purchasers. A significant portion of the loans were
securitized with the Company retaining the right to service the loans. The
Company was licensed as a consumer finance lender in 18 states and the District
of Columbia.

     On March 23, 2000, First Alliance Corporation, along with several of its
subsidiaries, filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Filing") in the United States Bankruptcy Court
for the Central District of California. As of the date of the Company's
voluntary bankruptcy petition, the United States Bankruptcy Court for the
Central District of California assumed jurisdiction over the assets of the
Company. As a debtor in possession, the Company remains in control of its assets
and is authorized to operate its business, subject to the supervision of the
Bankruptcy Court. The Company's filing is expected to facilitate the
reorganization, marketing, sale and liquidation of the Company's remaining
business and assets. The Company laid off over 400 employees, ceased all loan
origination and branch operations, and therefore, has no operating loan
origination business. The affected offices were located in California, New York,
New Jersey, Illinois, Arizona, Colorado, Maryland, Oregon, Utah and Washington.
For financial statement presentation only, March 31, 2000 will be considered the
effective date of the Bankruptcy Filing. However, the Company applied the
liquidation basis accounting effective with the date of the Bankruptcy Filing.

     It is management's intention to market for sale and operate pending such
sale of all or a significant portion of the Company's remaining assets. Proceeds
from the sale of assets that are security for the Company's obligations to its
secured creditors will first be used to repay such secured creditors, which
include the Company's warehouse financing facility and a note payable related to
the financing of the Company's telemarketing facility in Irvine, California. Any
proceeds available after the satisfaction of the secured obligations from the
sale of such creditors' collateral, and proceeds from the sale of the Company's
free and clear assets will be utilized to repay unsecured creditors with allowed
claims. There can be no assurance, however, that the Company will be successful
in selling the assets at a value which will allow the Company to fulfill all of
its debt obligations. All repayments mentioned above will be in accordance with
United States Bankruptcy law, pursuant to appropriate orders of the United
States Bankruptcy Court. Further, the Company has recently entered into a
proposed settlement of its outstanding litigation.

     Management, based upon the advice of its outside bankruptcy counsel, has
estimated that the overall reorganization/liquidation plan will take
approximately 12 months from December 31, 2001, subject to change depending on
the outcome of certain litigation. No assurance, however, can be given that the
Company will be able to complete its reorganization/liquidation plan within the
time expected.


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of First Alliance Corporation ("FACO") and its subsidiaries
(collectively the "Company"). The consolidated financial statements are prepared
in accordance with generally accepted accounting principles. All significant
inter-company accounts and transactions have been eliminated in consolidation.

     As a result of the Bankruptcy Filing and management's intention to market
and sell the assets of the Company, the liquidation basis of accounting and
financial statement presentation was adopted for periods subsequent to March 31,
2000. Accordingly, for financial information presented subsequent to March 31,
2000 the "Consolidated Statement of Financial Condition" has been replaced with
the "Consolidated Statement of Net Assets Available for Liquidation," while the
"Consolidated Statement of Operations" has been replaced with the "Consolidated
Statement of Change in Net Assets." Prior to March 31, 2000, the Company
reported a "Consolidated Statement of Financial Condition" and "Consolidated
Statement of Operations" using the accounting principles applicable to going
concern entities. Therefore, financial statements presented for the period prior
to the Bankruptcy Filing are not comparable to the financial statements
presented subsequent to the Bankruptcy Filing, which applies the liquidation
basis of accounting.

                                      F-17
<PAGE>

     Liquidation basis accounting requires the Company to provide for all
liabilities related to expenses, including general and administrative, to be
incurred during the liquidation period using certain assumptions, including
assumptions as to the timing of asset disposition. Therefore, the Company has
recorded approximately $13.0 million in estimated liquidation cost accrual as of
December 31, 2001.

     Liquidation basis accounting also requires assets to be valued at their
estimated net realizable value and liabilities to be estimated as amounts to be
paid in settlement of the entity's obligation. Estimated net realizable value
represents management's best estimate as to liquidation value of the assets, net
of selling expenses, and without consideration to the unknown impact that the
Bankruptcy Filing or the outcome of any litigation or claims may have on the
value of the assets. Therefore, the Company has recorded a valuation adjustment
to the cost basis of certain assets and liabilities of approximately $7.5
million. Of this $7.5 million, $4.1 million pertains to adjustments made in
2000, and $3.4 million for adjustments made in 2001. After the Bankruptcy
Filing, various creditors, borrowers and governmental units submitted proofs of
claim against the Company. As of the filing of this report, the Company had
received over $11 billion in claims and other unspecified amount claims from
governmental units and others. The Company is currently in the process of
reviewing approximately over 2,800 claims. The review process consists of
analyzing the validity, objectability and duplication of the claims. Based on
the unfinished review process, the Company has established accruals and reserves
for certain claims that, at this point, the Company has determined to be
probably valid. As of December 31, 2001, the Company had provided for
approximately $16.6 million for such claims. There is no assurance that this
amount will be sufficient to satisfy the ultimate disposition of the claims once
the final review is completed. These claims asserted against the Company may
materially diminish, if not eliminate, any distribution to shareholders.

     Management, based upon the advice of its outside bankruptcy counsel, has
estimated that the overall reorganization/liquidation plan will take
approximately 12 months from December 31, 2001, subject to change depending on
the outcome of certain litigation. No assurance, however, can be given that the
Company will be able to complete its reorganization/liquidation plan within the
time expected.

     CASH AND CASH EQUIVALENTs - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.

     RESTRICTED CASH - The Company's restricted cash balance as of December 31,
2001 is comprised of (i) $3.8 million in holdbacks related to the July 2000
servicing rights sale, and (ii) $0.3 million related to a custodial account as
required by its warehouse lender. The Company maintained a reserve balance of
$0.7 million as of December 31, 2001 against these restricted cash amounts. The
Company had a restricted cash balance of $7.1 million as of December 31, 2000.

     CREDIT CARD ACCOUNTS - The Company realized a $942,000 gain on the
Bankrupty Court-approved settlement of its credit card dispute with Fidelity
Federal Bank, a Federal Savings Bank ("Fidelity"). Fidelity agreed to relinquish
its previously filed proof of claim for $15.7 million in exchange for a $2.4
million unsecured claim. Additionally, Fidelity was allowed to set off, against
the claim, the $2.8 million restricted cash it held with regard to the credit
card program.

     LOANS - Loans receivable are mortgages originated and purchased by the
Company and are carried at net realizable value as of both December 31, 2001 and
December 31, 2000. When a loan becomes over 90 days contractually delinquent, it
is placed on non-accrual status and unpaid interest income is reversed. While a
loan is on non-accrual status, interest is recognized only as cash is received
(see further discussion of interest income below under REVENUE RECOGNITION).

     As of December 31, 1999, loans held for sale were carried at the lower of
aggregate cost or market value. Loan origination and processing fees and related
direct origination costs were deferred until the related loan was sold. Loans
receivable held for investment were loans the Company purchased or originated
and had the intent and ability to hold to maturity. Loan origination and
processing fees and related direct origination costs associated with loans
receivable held for investment are deferred and offset against the related
loans, the net fee or cost is amortized into income over the contractual lives
of the related loans. Loans transferred from loans held for sale to loans
receivable held for investment were transferred at the lower of cost or market
value. When a loan became over 90 days contractually delinquent, it was placed
on non-accrual basis status and unpaid interest income was reversed. While a
loan was on non-accrual status, interest was recognized only as cash was
received.

                                      F-18
<PAGE>

     RESIDUAL INTERESTS IN SECURITIES - The Company securitizes a majority of
loans held for sale in a trust. The trust is a multi-class security which
derives its cash flow from a pool of mortgages. The regular interests of the
securitization trusts are sold and the residual interests are retained by the
Company. The documents governing the Company's securitizations require the
Company to establish initial overcollateralization or build
overcollateralization levels through retention of distributions by the
securitization trust otherwise payable to the Company as the residual interests
holder. This overcollateralization causes the aggregate principal amount of the
loans in the related pool and/or cash reserves to exceed the aggregate principal
balance of the outstanding regular interests. Such excess amounts serve as
credit enhancement for the regular interests of the related securitization
trust. To the extent that borrowers default on the payment of principal or
interest on the loans, losses will reduce the overcollateralization to the
extent that funds are available. If payment defaults exceed the amount of
overcollateralization, as applicable, the insurance policy maintained by the
related securitization trust will pay any further losses experienced by holders
of the regular interests in the related securitization trust. The Company does
not have any recourse obligations for credit losses in the securitization trust.

     For the years ended December 31, 2001 and 2000, the Company, according to
the liquidation basis accounting, is required to value its assets at their
estimated net realizable value. The Company had historically valued the residual
interests using a model that takes into account discounted cash flows, using
prepayment, default, loss and interest rate assumptions that market participants
would use for similar financial instruments. When the Company entered
liquidation, it adjusted the valuation formula to use only discounted cash flows
and return of overcollateral, and used the valuation of the Residual Interests
as of March 31, 2000, as a starting point. This conservative adjustment was made
to reflect the lack of a recognized market for these complex derivative
interests, litigation risk, and other market conditions. In year 2000, there was
not a significant difference between the valuation and the prior model. In year
2001 use of the prior model would have resulted in a higher valuation than use
of the methodology adopted in 2000. Since the facts that led the Company to make
the conservative adjustment in 2000 remain, the Company decided to make no
upward adjustment to the valuation. In March 2002, the Company announced a
proposed settlement of borrower litigation. The negotiated terms of the proposed
settlement, if approved by the Court, will result in the sale of these assets
for the value on the Company's financial statement as of December 31, 2001 to
Brian and Sarah Chisick, related parties.

     For 1999, the Company classified residual interests as trading securities,
which were carried at fair value with any unrealized gains or losses recorded in
the results of operations in the period of the change in fair value. Valuations
at origination and at each reporting period are based on discounted cash flow
analyses. The cash flows are estimated as the excess of the weighted average
coupon on each pool of underlying mortgages over the sum of the pass-through
interest rates on the regular interests of the related securitization trust,
servicing fees, trustee fees, insurance fees, and an estimate of annual future
loan losses. These cash flows are projected over the life of the loans using
prepayment, default, loss, and interest rate assumptions that market
participants would use for similar financial instruments and are discounted
using an interest rate that a purchaser unrelated to the seller of such a
financial instrument would demand. To value residual interests at the time of
securitization, the Company used historical constant prepayment rate ("CPR")
experience assumptions. To re-value the residual interests at each reporting
period, the Company arrives at its CPR assumptions by using the actual six-month
prepayment average, which is applied to the first 18 months of cash flows, and
the actual life to date prepayment average to the remaining months of cash
flows. To the Company's knowledge, there is no active market for the sale of
these residual interests. The range of possible values attributable to the
factors used in determining fair value is broad. Accordingly, the Company's
estimate of fair value is subjective. The Company capitalized $14.5 million in
residual interests certificates in 1999. Cash collections related to residual
interests certificates totaled $18.0 million, $16.9 million, and $19.6 million
for December 31, 2001, 2000 and 1999, respectively. During 1999, the Company
recorded aggregate unrealized gains in the value of its residual interests of
$0.9 million. These unrealized gains are included in loan origination and sale
revenue. The Company did not consummate any securitizations during either 2001
or 2000, primarily as a result of the Bankruptcy Filing and the closure of its
loan origination operations and therefore did not capitalize any residual
interests certificates.

                                      F-19
<PAGE>

     The Company utilized the following key assumptions to value its residual
interests certificates originated during 1999:

<TABLE>
<CAPTION>
                                                             ------------------------------------------------------------
                                                                                        1999
                                                             ------------------------------------------------------------
                                                                  Fixed Rate            Adjustable
                                                                     Loans            Rate Loans (1)         Total
                                                             ------------------------------------------------------------
     <S>                                                             <C>                  <C>                 <C>
     Weighted average CPR....................................          29%                  39%                 34%
     Weighted average discount rate..........................          18%                  18%                 18%
     Weighted average annualized credit
        losses - in basis points.............................          50                   50                  50
     Weighted average life (in years)........................        2.90                 1.99                2.43

</TABLE>

     The following table represents certain loan characteristics related to the
Company's securitizations as of the years ended 2001 and 2000:

<TABLE>
<CAPTION>
                                         -------------------------------------------- --------------------------------------------
                                                            2001                                         2000
                                         -------------------------------------------- --------------------------------------------
                                          Fixed Rate     Adjustable                    Fixed Rate     Adjustable
                                            Loans      Rate Loans (1)      Total         Loans      Rate Loans (1)      Total
                                         ------------- ---------------- ------------- ------------- ---------------- -------------
                                                   (Dollars in thousands)                       (Dollars in thousands)
<S>                                         <C>             <C>            <C>           <C>             <C>            <C>
Weighted average coupon..............           9.49%           9.90%          9.61%         9.49%          10.24%          9.73%
Number of loans......................          4,186           1,327          5,513         5,418           1,985          7,403
Total principal amount of loans......       $308,840        $126,920       $435,760      $419,816        $203,402       $623,218
Yield to bondholders.................           6.90%           2.36%          5.58%         6.89%           7.00%          6.93%
Net spread to residual holder (2)....           1.88%           6.70%          3.28%         1.90%           2.58%          2.12%
Current overcollateralization level..        $10,971         $14,811        $25,782       $12,834         $15,957        $28,791
Overcollateralization target.........        $11,026         $14,998        $26,024       $13,164         $17,580        $30,744
Principal amount of loans 30 days
   or more past due (3)..............        $13,817         $15,538        $29,355       $18,161         $18,675        $36,836
Net credit losses during the year....           $471            $631         $1,102          $202            $756           $958

</TABLE>

(1)  Loans which carry a fixed interest rate for the first two or three years of
     the loan contract and which adjust to a variable rate for the remaining
     life of the contract are classified as and included under "Adjustable Rate
     Loans"
(2)  Represents gross spread minus servicing, trustee and insurance fees
(3)  Including real estate owned

     MORTGAGE SERVICING RIGHTS - Upon the sale or securitization of servicing
retained loans, the Company capitalized the costs associated with the right to
service mortgage loans based on their relative fair values. The Company
determined the fair value of the servicing rights based on the present value of
estimated net future cash flows related to servicing income. Assumptions used to
value mortgage servicing rights are consistent with those used to value residual
interests. The value allocated to the mortgage servicing rights is amortized in
proportion to and over the period of estimated net future servicing fee income.
The Company did not consummate any securitizations during 2001 or 2000, and
therefore did not capitalize any mortgage servicing rights.

     The Company capitalized $4.8 million of mortgage servicing rights for the
year ended December 31, 1999. During the same period, related amortization of
such mortgage servicing rights was $6.1 million. The Company periodically
evaluated capitalized mortgage servicing rights for impairment, which represents
the excess of unamortized cost over fair value. This review is performed on a
disaggregated basis based on loan type. Impairment, if it occurs, is recognized
in a valuation allowance for each pool in the period of impairment. The
estimated fair value of mortgage servicing rights was $8.7 million at December
31, 1999. The Company did not have a valuation allowance related to mortgage
servicing rights at December 31, 1999.

                                      F-20
<PAGE>

     On July 14, 2000, the Company received authorization from the United States
Bankruptcy Court for the sale of its approximately $714 million servicing rights
portfolio and agreed to a price of $7.9 million. In addition, the Company was
reimbursed for servicing advances, totaling approximately $3.2 million. Proceeds
from such sale are subject to certain holdback provisions. This transaction
allowed the Company to enter into a "Consent Agreement" with the trustees and
bond insurers, whereby the Company will be deemed to have satisfied the events
of default under the Company's pooling and servicing agreements arguably
triggered as a result of the Bankruptcy Filing, subject to monetary holdback
provisions contained in such agreement. This transaction provided the Company
with the ability to completely exit the business of loan servicing for others,
except with respect to the Company's servicing of its wholly-owned loans of
approximately $36.1 million as of December 31, 2001. The Company's sale of its
servicing rights portfolio did not have a material adverse effect on the
Company's financial condition since, at the time of sale, the Company provided
an estimated reserve, which as of December 31, 2001 was $0.7 million against
$3.8 million of restricted cash for certain holdback provisions. However, the
Company's inability to recover these monetary holdbacks in connection with this
transaction may have a material adverse effect on the Company's financial
condition. In addition, the Company's source of future loan servicing revenues
has significantly diminished as a result of this transaction.

     PROPERTY - In accordance with liquidation basis accounting, property is
stated at net realizable value as of December 31, 2001 and December 31, 2000.
For prior year periods, property is stated at cost and depreciated over the
estimated useful lives of the assets using straight line or accelerated methods,
while leasehold improvements are amortized on the straight-line method over the
lesser of the useful lives of the assets or the terms of the related leases.
Useful lives generally range from three to five years, other than buildings and
related improvements, for which a useful life of ten years is used.

     REAL ESTATE OWNED ("REO") - As of December 31, 2001, the Company had a net
REO balance of $31,000, which was accounted for using the net realizable value.
At December 31, 2000, the Company did not have any REO property. As of December
31, 1999, the Company had a net REO balance of $149,000. At that time, real
estate acquired through foreclosure was carried at fair value less costs to
dispose. Fair value is based on the net amount that the Company could reasonably
expect to receive for the asset in a current sale between a willing buyer and a
willing seller, that is, other than in a forced or liquidation sale. Adjustments
to the carrying value of REO were made through valuation allowances and
charge-offs recognized through a charge to earnings. The balance of REOs at
December 31, 1999 was included in the Company's property line item of the
Consolidated Statements of Financial Condition.

     ALLOWANCES FOR ESTIMATED LOSSES ON LOANS AND REAL ESTATE OWNED - As of
December 31, 1999, the allowances for estimated losses on loans and real estate
owned ("REO") represented the Company's estimate of identified and unidentified
losses. These estimates, while based upon historical loss experience and other
relevant data, were ultimately subjective and inherently uncertain. Loans were
collectively evaluated for impairment and when the estimated losses were
determined to be permanent, as in the case of an REO, the Company then
established a special allowance for estimated losses.

     GOODWILL - In July 1999, the Company acquired Coast Security Mortgage, Inc.
("Coast"), a retail mortgage company. Coast was previously owned by, among
others, Mark Chisick and Brad Chisick, each of whom are sons of Brian Chisick,
FACO's chairman and chief executive officer. The purchase price of $4.1 million
was finalized subject to customary indemnification, a $1.0 million monetary
holdback and an independent third party evaluation regarding pricing and terms
of the transaction. The acquisition of Coast was recorded using the purchase
method of accounting with approximately $3.2 million in goodwill recorded on the
transaction, which was being amortized over 10 years.

     The monetary holdback, which accrues interest at 8.5%, was scheduled to be
disbursed in three installments beginning during 2000. Due to the Bankruptcy
Filing, however, the Company has not made any installment payments. As a
consequence of the Bankruptcy Filing, the Company was unable to secure financing
for Coast and therefore was forced to close down its lending operations.
Accordingly, the Company wrote off the unamortized balance of goodwill during
2000.

     RESERVE FOR ESTIMATED LIQUIDATION COSTS - Liquidation basis accounting
requires the Company to provide for all liabilities related to expenses,
including general and administrative, to be incurred during the liquidation
period. Therefore, the Company recorded and accrued an estimate of liquidation
expenses to be incurred using certain assumptions, including assumptions as to


                                      F-21
<PAGE>

the timing of asset disposition. Therefore, the Company has recorded
approximately $13.0 million in estimated liquidation cost accrual as of December
31, 2001. There is no assurance, however, that actual liquidation expenses will
not exceed management's estimates.

     Management, along with its outside bankruptcy counsel, has estimated that
the overall reorganization/liquidation plan will take approximately 12 months
from December 31, 2001, subject to change depending on the outcome of certain
litigation. No assurance, however, can be given that the Company will be able to
complete its reorganization/liquidation plan within the time expected.

     REVENUE RECOGNITION - Prior to the Bankruptcy Filing, the Company derived
its revenue principally from gains on sales of loans, fees for the origination
of loans, loan servicing fees and interest income. The Company's current sources
of revenue include servicing income from its remaining servicing business,
proceeds from liquidation of assets, interest earned from residual interests,
loans held for sale and interest earned on outstanding cash balances. Other than
proceeds from the sale of assets, the Company expects servicing and interest
income to be its only source of revenue.

     SECURITIZATION - Prior to the Bankruptcy Filing, the Company sold its loans
through securitization and whole loan sales. Origination fees from loans pooled
and securitized or sold in the secondary market were recognized when such loan
pools were sold. The Company retained the right to service all loans it
securitized. The Company received a management fee for servicing loans based on
a fixed percentage of the declining principal balance of securitized loan pools
and other ancillary and prepayment fees associated with the servicing of such
loans. The Company has historically retained a residual interests in the
securitization trusts. (See further discussion above under "Residual interests
in Securities.")

     Gains on servicing retained sales of loans through securitization represent
the difference between the net proceeds to the Company in the securitization and
the allocated cost of loans securitized. The allocated cost of the loans
securitized is determined by allocating their acquisition cost (for purchased
loans) or net carrying value (for originated loans) between the loans
securitized and the residual interests and the mortgage servicing rights
retained by the Company based upon their relative fair values. The net carrying
value of originated loans is equal to their principal balance less net deferred
origination fees. At origination, the Company classifies the residual interests
as trading securities, which are carried at fair value. The difference between
the fair value of residual interests and their allocated cost is recorded as
gain on securitization and is included in loan origination and sale revenue.
Gains on servicing released whole loan sales equal the difference between the
net proceeds to the Company from such sales and the loans' acquisition costs or
net carrying values.

     Loan servicing and other fees are recorded as earned.

     Interest income is recorded as earned. Interest income represents the
interest earned on loans held for sale during the period prior to their
securitization or sale, loans receivable held for investment, residual interests
and cash equivalents. When a loan becomes over 90 days contractually delinquent,
it is placed on non-accrual status and unpaid interest income is reversed. While
a loan is on non-accrual status, interest is recognized only as cash is
received.

     INCOME TAXES - Deferred tax assets and liabilities are determined based on
temporary differences between financial reporting and tax basis of assets and
liabilities and are measured by applying enacted tax rates and laws to taxable
years in which such temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

     The Company periodically assesses the recoverability of its deferred tax
assets. In the event that the deferred tax asset does not appear to be fully
realizable, the Company, in accordance with SFAS 109 will establish an allowance
for the unrecoverable portion of the deferred tax asset.

     USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.

     Among the more significant estimates used by management are assumptions as
to (i) the value of residual interests and net realizable value of other assets,
(ii) reserve for estimated liquidation costs, and (iii) litigation accrual.

                                      F-22
<PAGE>

NOTE 3.  PROPERTY

     As of December 31, 2001 and December 31, 2000, the property of the Company
consists of land, building, building improvements, office equipment, furniture
and vehicles for an estimated net realizable value of approximately $4.7 million
and $6.1 million, respectively.


NOTE 4.  SERVICING PORTFOLIO

     Trust and other custodial funds, relating to loans serviced for others,
totaled $104,000, $60,000 and $19 million at December 31, 2001, 2000 and 1999,
respectively. The significant decrease in such trust funds is related to the
sale of the Company's servicing rights portfolio in July 2000. Such funds, which
are maintained in separate bank accounts, are excluded from the Company's assets
and liabilities.

     Total loans serviced amounted to $36 million, $62 million and $892 million
at December 31, 2001, 2000 and 1999, respectively.

     In prior years, approximately 96% of the servicing portfolio related to
loans serviced on behalf of the trust, with the remaining 4% relating to loans
serviced on behalf of private lenders or loans held for sale. As of December 31,
2001 and 2000, the Company was only servicing loans held for sale. At December
31, 1999, loans serviced related to property located in California comprised
approximately 44% of the total serviced loan portfolio, while no other state
comprised more than 12%. At December 31, 2000, loans serviced related to
property located in California comprised approximately 43% of the total serviced
loan portfolio, while no other state comprised more than 15%. At December 31,
2001, loans serviced related to property located in California comprised
approximately 45% of the total serviced loan portfolio, while no other state
comprised more than 13%. Total delinquencies greater than 30 days as a
percentage of the total servicing portfolio were 8.57%, 5.1% and 3.5% at
December 31, 2001, 2000 and 1999, respectively.


NOTE 5.  WAREHOUSE FINANCING FACILITY

     The Company has one warehouse financing facility as of December 31, 2001.
This $150 million warehouse financing facility is secured by loans originated or
purchased by the Company, bears interest at a rate ranging between 1.25% to
1.75% over one month United States dollar denominated London Interbank Offered
Rate ("LIBOR"), and under normal business conditions would have expired in
December 2000. Due to the Bankruptcy Filing, however, the lender is required to
maintain the financing for the Company until a reorganization/liquidation plan
has been approved by the Bankruptcy Court. The Company's outstanding balance on
this warehouse financing facility was approximately $25.8 million as of December
31, 2001. The Company expects to repay its warehouse lender once it liquidates
the underlying mortgages collateralizing the loan. As partial consideration for
obtaining its $150 million warehouse financing facility, the Company granted the
warehouse lender stock warrants during both 1998 and 1999. The stock warrants
granted in 1998 provide the lender the option to purchase 1% of the Company's
then outstanding common stock, with an effective date of January 15, 2001. The
original effective date of the 1998 warrants was amended in 1999 from February
15, 1999 to January 15, 2001. These warrants have a 10-year exercise period and
were granted at an exercise price of $3 5/16. The warehouse lender subsequently
released all rights, titles and interest that it had with respect to the 1998
warrants, and released the Company from any obligation thereunder. The stock
warrants granted in 1999 provide the warehouse lender the option to purchase
4.9% of the Company's then outstanding common stock, with an effective date of
January 15, 2000. These warrants have a 10-year exercise period and were granted
at an exercise price of $2.00. The warehouse lender has not exercised its call
option under any of the above described stock warrant arrangements. The Company
has accounted for these warrants by recording the fair value of the warrants to
debt issuance costs and additional paid in capital. Debt issuance costs were
amortized over 12 months. The facility contains certain affirmative and negative
covenants with respect to which the Bankruptcy Filing may have triggered an
event of default. The Company contends that it is not in default pursuant to,
among other things, 11 USC ss. 365 (b)(2). Notwithstanding the pendency of the
bankruptcy case, the warehouse lender may be able to exercise its remedies under
the agreement and require the Company to either repay the entire balance
outstanding on the warehouse financing facility or force the Company to transfer
ownership of the underlying loans held for sale, which are collateralizing the
loan.

                                      F-23
<PAGE>

     The following table presents data on the lines of credit for the years
ended December 31:

<TABLE>
<CAPTION>
                                                                                    2001           2000           1999
                                                                                -------------  -------------  -------------
                                                                                          (Dollars in thousands)

        <S>                                                                         <C>            <C>           <C>
        Weighted average interest rate for the period...........................       5.36%          7.66%          7.40%
        Weighted average interest rate at the end of the period.................       3.39%          8.07%          7.72%
        Average amount outstanding for the period...............................    $ 38,428       $ 58,817      $  72,085
        Maximum amount outstanding at any month-end.............................    $ 54,077       $ 76,437      $ 145,772

</TABLE>

NOTE 6.  OTHER BORROWINGS AND NOTES PAYABLE

     As of December 31, 1999, the Company's notes payable balance consisted of
two notes. The first note, which as of December 31, 2001, 2000 and 1999 had a
balance of $3.4 million, $3.5 million and $3.6 million, respectively, bears a
fixed interest rate of 6.9%, relates to the financing of the Company's
telemarketing facility. This note matures on March 1, 2009, at which time a
balloon payment of $2.5 million is due. The second note, which as of December
31, 2001, 2000 and 1999 had a balance of $1.0 million for all three years and
bears a fixed interest rate of 8.5%, relates to the acquisition of Coast during
1999. This note is due in three equal annual installments beginning in 2000.
However, as a result of the Bankruptcy Filing, the Company has not made any of
the installment payments. During 2001, the note was reclassified to the reserve
for estimated pre-petition costs.


NOTE 7.  EMPLOYEE BENEFIT PLAN

     The Company had a 401(k) defined contribution plan, which was established
in 1994, available to all employees who have been with the Company for six
months and have reached the age of 18. Employees may generally contribute up to
15% of their salary each year and the Company, at its discretion, may match up
to 25% of the first 7% contributed by the employee. The Company's contribution
expense was $0.00, $94,000 and $211,000 for the years ended December 31, 2001,
2000 and 1999, respectively. Due to the Bankruptcy Filing and the Company's
intent to liquidate, the Company terminated this plan in July 2000.


NOTE 8.  INCOME TAXES

     The reconciliation of income tax computed at the Federal statutory tax rate
to the Company's effective income tax rate is as follows for the year ended
December 31, 2001, for the three months ended March 31, 2000 and nine months
ended December 31, 2000, and for the year ended December 31, 1999:

<TABLE>
<CAPTION>
                                                                         FOR THE PERIOD      OR THE PERIOD
                                                                        FROM APRIL 1 TO     FROM JANUARY 1
                                                                          DECEMBER 31,      FTO MARCH 31,
                                                        2001                  2000               2000            1999
                                                  ------------------   -------------------  ---------------- --------------
<S>                                                      <C>                   <C>                  <C>            <C>
Tax at Federal statutory rate...................           35.0 %                35.0 %             35.0%          35.0%
State income taxes, net of Federal benefit......           5.58                   0.3                 --            4.3
Other...........................................           4.06                    --                 --            0.7
Valuation allowance.............................         (44.72)               (132.3)                --             --
                                                  ------------------   -------------------  ---------------- --------------
Effective rate..................................          (0.08)%               (97.0)%             35.0%          40.0%
                                                  ==================   ===================  ================ ==============
</TABLE>

                                      F-24
<PAGE>

     The components of the provision for income taxes are as follows for the
year ended December 31, 2001, for the three months ended March 31, 2000 and nine
months ended December 31, 2000, and for the year ended December 31, 1999:

<TABLE>
<CAPTION>
                                                                         FOR THE PERIOD     FOR THE PERIOD
                                                                        FROM APRIL 1 TO     FROM JANUARY 1
                                                                          DECEMBER 31,       TO MARCH 31,
                                                        2001                  2000               2000            1999
                                                  ------------------   -------------------  ---------------- --------------
                                                                           (Dollars in thousands)
<S>                                                      <C>                 <C>                  <C>           <C>
Current:
   Federal......................................         $    7              $ (2,120)            $   --        $ 8,054
   State........................................              2                    (8)                --          2,243
                                                  ------------------   -------------------  ---------------- --------------
Total current...................................              9                (2,128)                --         10,297
                                                  ------------------   -------------------  ---------------- --------------

Deferred:
   Federal......................................             --                 8,006             (7,816)        (7,939)
   State........................................             --                  (140)                --         (1,820)
   Foreign......................................             --                    --                 --          2,012
                                                  ------------------   -------------------  ---------------- --------------
Total deferred..................................             --                 7,866             (7,816)        (7,747)
                                                  ------------------   -------------------  ---------------- --------------

Total...........................................         $    9               $ 5,738           $ (7,816)       $ 2,550
                                                  ==================   ===================  ================ ==============
</TABLE>


     Deferred tax assets and liabilities reflect the temporary differences
between financial reporting and tax basis of assets and liabilities and are
measured by applying enacted tax rates and laws to taxable years in which such
temporary differences are expected to be recovered or settled. The following are
the significant components of the Company's deferred tax assets and liabilities
as of December 31:

<TABLE>
<CAPTION>
                                                            2001            2000
                                                       --------------- ---------------
                                                           (Dollars in thousands)
        <S>                                                 <C>            <C>
        Deferred tax assets:
            Residual interests........................      $  3,486       $  2,156
            State taxes...............................            --              1
            Legal expenses............................         1,282          1,282
            Reserve for liquidation expense...........         9,969          4,730
            Reserve for bad debts.....................            --          1,702
            Other.....................................           791            812
                                                       --------------- ---------------
        Total.........................................      $ 15,528       $ 10,683
                                                       =============== ===============

        Deferred tax liabilities:
            Mark to market on loans receivable........       $   957         $  957
            Other ....................................           563            715
                                                       --------------- ---------------
        Total.........................................      $  1,520        $ 1,672
                                                       =============== ===============

        Net deferred taxes prior to allowance.........      $ 14,008        $ 9,011
        Allowance for deferred taxes..................       (14,008)        (9,011)
                                                       --------------- ---------------
        Net deferred taxes............................       $    --         $   --
                                                       =============== ===============
</TABLE>

     The Company's Bankruptcy Filing, which resulted in the closure of all loan
origination operations, and the sale of the servicing rights portfolio, has
significantly limited the Company's ability to generate future revenues and
operating income. As a result, the Company has determined that it is more likely
than not that the balance of net deferred taxes will not be recovered within the
reorganization/liquidation period. Therefore, in accordance with SFAS 109, the
Company has established a valuation allowance for the balance of net deferred
taxes.

                                      F-25
<PAGE>

NOTE 9.  COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF RISK

     At December 31, 2001, the Company only retains a lease on approximately
4,000 square feet at its main headquarters at 17305 Von Karman Avenue, Irvine,
California. This lease expired in January 2002, and has been extended on a
month-to-month basis. All other leases have either expired, have been
repudiated, or have been settled.

     In addition, due to prior years' transactions, the Company, in the ordinary
course of business, has liability under representations and warranties made to
purchasers and insurers of mortgage loans. Under certain circumstances, the
Company may become liable for the unpaid principal and interest on defaulted
loans or other loans, if there has been a breach of representations or
warranties.


     LEGAL PROCEEDINGS

     In June 2001, the Attorney General of the State of California filed an
action on behalf of the State in the Los Angeles County Superior Court against
the Company, one of its subsidiaries, the Chairman and Chief Executive Officer,
and a former Vice President. The suit alleges violations of the California
unfair business practices statute and certain federal laws. The Attorney General
seeks restitution, damages, civil penalties, attorneys' fees and costs. This
action was subsequently dismissed, and re-filed in the United States District
Court with the FTC litigation (see below). This action is one of the subjects of
the proposed Settlement (see "Proposed Settlement").

     In October 2000, the Federal Trade Commission filed an action against the
Company in the United States District Court for the Central District of
California. The action alleges that the Company failed to substantiate
advertising claims regarding cost savings to consumers of debt consolidation
loans, misrepresented the terms of the loans to consumers, and violated
Regulation Z regarding a consumer booklet. The action seeks injunctive relief
and rescission or restitution on behalf of certain borrowers. The Bankruptcy
Court enjoined prosecution of this action, but the U.S. District Court reversed
the injunction, and withdrew the reference to the Bankruptcy Court of the FTC
claim. That action is now proceeding in the District Court, and the Court set a
trial date in April 2002. This action is one of the subjects of the proposed
Settlement (see "Proposed Settlement").

     In July 2000, the Florida Attorney General commenced an action in Broward
County Circuit Court seeking injunctive relief, civil penalties, restitution,
rescission and damages, and named a number of current and former officers,
directors, and employees of the Company. The Bankruptcy Court enjoined
prosecution of this action but the U.S. District Court reversed the injunction,
and withdrew the reference to the Bankruptcy Court of the states' claims.
Florida subsequently re-filed the action in the United States District Court
with the FTC litigation (see above). This action is one of the subjects of the
proposed Settlement (see "Proposed Settlement").

     In May 2000, Jacqueline Bowser and Irene Huston filed a class action
lawsuit against the Company. The complaint seeks rescission based upon fraud and
violation of the Truth-in-Lending Act and Home Ownership and Equity Protection
Act. The complaint was filed as an adversary proceeding in the Company's
consolidated bankruptcy case. In June 2000, Vincent Aiello and other borrowers
filed a similar action in the Bankruptcy Court. On February 15, 2001, the
Bankruptcy Court denied a motion for class certification in these actions and
sustained the Company's objections to the class proofs of claim filed. An appeal
of that order was filed, and the District Court reversed the holdings of the
Bankruptcy Court, and certified a class action. The Company is appealing this
ruling to the Ninth U.S. Circuit Court of Appeal. This action is one of the
subjects of the proposed Settlement (see "Proposed Settlement").

     In December 1998, the Attorney General of the State of Illinois filed an
action on behalf of the State against the Company in the Cook County Circuit
Court. The suit alleges violations of the Illinois Consumer Fraud Act, Deceptive
Trade Practices Act and Illinois Interest Act. The Attorney General seeks
injunctive relief, restitution, civil penalties, rescission, revocation of
business licenses, attorneys' fees and costs. The Company's motion to dismiss
the complaint was granted as to three of the four claims. The Company and the
State were discussing settlement prior to the Bankruptcy Filing. The Bankruptcy
Court enjoined prosecution of this action but the U.S. District Court reversed
the injunction, and withdrew the reference to the Bankruptcy Court of Illinois.
An appeal filed by Illinois of the dismissal of most of its action is proceeding
in the Illinois state courts. Illinois subsequently re-filed the action in the
United States District Court with the FTC litigation (see above). This action is
one of the subjects of the proposed Settlement (see "Proposed Settlement").

                                      F-26
<PAGE>

     In December 1998, the American Association of Retired Persons ("AARP")
filed an action against the Company and Brian Chisick, Chairman and Chief
Executive Officer of the Company, and his wife, Sarah, in the Superior Court of
California, in the County of Santa Clara. The suit alleges unfair, unlawful,
fraudulent and deceptive business practices and conspiracy. The AARP is seeking
injunctive relief, restitution, revocation of licenses, attorneys' fees and
costs. The case was in the discovery stage, and the parties were discussing
settlement prior to the Bankruptcy Filing. On March 16, 2001, the Bankruptcy
Court sustained the Company's objections to the proofs of claim filed by AARP in
their entirety. An appeal of that order was filed, and the District Court
reversed the holdings of the Bankruptcy Court. The Company is appealing the
ruling to the Ninth U.S. Circuit Court of Appeal. This action is one of the
subjects of the proposed Settlement (see "Proposed Settlement").

     In October 1998, the Attorney General of Massachusetts filed an action on
behalf of the Commonwealth against the Company in the Superior Court of
Massachusetts, in the County of Suffolk, alleging unfair and deceptive business
practices and seeking an injunction against the Company from charging rates,
points and other terms which significantly deviate from industry-wide standards
or which are otherwise unconscionable or unlawful. The remedies sought by the
Attorney General include injunctive relief; restitution for all consumers; civil
penalties; and the costs of investigating and prosecuting the action, including
attorneys' fees. A preliminary injunction was granted, limiting the points the
Company can charge to a total of five. In addition, the Company must advise the
Attorney General before any foreclosure actions are filed in the Commonwealth.
The Company filed a motion to vacate the injunction, which was denied without
prejudice. The case was in the discovery stage prior to the Company's Bankruptcy
Filing. The Bankruptcy Court enjoined prosecution of this action but the U.S.
District Court reversed the injunction, and withdrew the reference to the
Bankruptcy Court of the Commonwealth's claim. A motion for summary judgment was
filed by the Commonwealth of Massachusetts in State Court, which the Company
opposed, and the Court denied. This action is one of the subjects of the
proposed Settlement (see "Proposed Settlement").

     In June 1998, Leon Rasachack and Philip A. Ettedgui filed a class action
suit on behalf of all purchasers of the Company's Common Stock between April 24,
1997 through May 15, 1998. The suit was filed in the Superior Court of
California in the County of Orange against the Company, Brian Chisick, Sarah
Chisick and Mark Mason. The complaint alleges that the Company conspired against
those who purchased the stock during the stated class period by failing to
disclose known material adverse conditions in making certain public statements
about the Company's growth prospects. The state action was in the discovery
stage prior to the Company's Bankruptcy Filing. This action has been stayed
pursuant to an Order of the Bankruptcy Court.

     In April 2001, the United States District Court granted motions of the FTC,
the States of Arizona, California, Florida, Illinois, Massachusetts and New
York, and the Official Borrowers' Committee (on behalf of the approximately
2,000 borrowers who filed proofs of claim in the Bankruptcy), to withdraw the
reference to the Bankruptcy Court of the consideration of their claims. These
claims will now be determined in the District Court, though some litigation may
take place in the courts of the various states. On October 15, 2001, the
District Court found that it had jurisdiction over all of the third parties
related to these actions, and indicated that the actions should proceed on a
coordinated basis in the District Court. These actions are among the subjects of
the proposed Settlement (see "Proposed Settlement").

     Shortly after the Chapter 11 filing, the Company obtained an Order from the
Bankruptcy Court staying certain pending actions as to current and former
officers, directors and employees of the Company. That Order has been extended
several times, most recently on July 2, 2001. The Company has not sought another
extension of that Order, which has now expired.

     The Company is also a party to various legal proceedings arising out of the
ordinary course of its business including a number of lawsuits alleging
misleading lending practices, some of which were filed either as class actions
or under private attorney general statutes. These claims are dealt with in the
proposed Settlement (see "Proposed Settlement").

     As a result of the Chapter 11 filing, most of these actions against the
Company have been stayed pursuant to 11 USC ss.362(a). Various creditors,
borrowers and governmental units submitted proofs of claim against the Company.
As of the filing of this report, the Company had received over $11 billion in
claims and other unspecified amount claims from governmental units and others.
These claims are dealt with in the proposed Settlement (see "Proposed
Settlement").

                                      F-27
<PAGE>

     PROPOSED SETTLEMENT

     On March 6, 2002, the Company and its subsidiaries, and the Federal Trade
Commission ("FTC"), the Attorneys General of Arizona, California, Florida,
Illinois, and Massachusetts, the New York State Banking Department, and the
various Plaintiffs in the borrower related litigation reached a Proposed
Settlement ("Settlement") of all of the outstanding litigation. The terms of the
Settlement are summarized below. The actual settlement documents are posted on
the website of the FTC, and can be found at WWW.FTC.GOV/OPA/2002/03/FAMCO.HTM.
The Settlement is conditioned on a number of events, including, without
limitation, various approvals and Court orders. The Commissioners of the FTC
approved the terms of the Settlement on March 15, 2002.

     In brief, the Settlement provides for a "Redress Fund" to be established
under the control of the FTC. The FTC would then administer a claims process for
the payment of borrower claims.

     The Redress Fund is to be comprised of the assets of the Company, less
necessary amounts to pay: (1) present and future anticipated administrative
expenses, (2) general unsecured creditors, in a percentage of their claims to be
determined as part of the process of confirming a Bankruptcy Plan, and (3)
present and future anticipated Professional and Employee claims. Brian and Sarah
Chisick have agreed to contribute the sum of $20 million to the Company to be
part of the Redress Fund. Brian and Sarah Chisick have also agreed to purchase
the Company's Residual Interests for the amount of $25.1 million, the value of
the residual interests on the Company's books as of December 31, 2001. Brian and
Sarah Chisick have further agreed to be enjoined from engaging in any
residential loan origination business, and have agreed to other restrictions.

     Certain insurers for the Company and others with whom it did business are
contributing additional sums to the Redress Fund, and the terms of the
Settlement shall be the basis for a liquidating Chapter 11 Plan ("Amended Plan")
and a Court approved settlement of the FTC, State, and various borrower class
actions.

     As to the Company's shareholders, the Settlement proposes, in pertinent
part, that the Company would cancel all issued and outstanding shares of the
Company's common stock ("FACO Shares"). After the effective date of the
Settlement, a payment would be made from the Redress Fund to those persons who
held FACO Shares on the effective date. FACO shareholders would be paid the
lesser of $1.50 per share or the shareholder's purchase basis of such shares
prior to cancellation, provided that the total amount of such payments to all
shareholders does not exceed $3,250,000.00. Any FACO shares traded after
February 25, 2002, would be presumed to have a purchase basis not to exceed
$.09. If the total amount of such payments would exceed $3.25 million, the
payment to each former shareholder of the Company would be reduced on an equal
proportionate basis until the total payments do not exceed $3.25 million.
Certain shareholders, including Brian and Sarah Chisick, would waive any payment
for FACO shares they hold.

     The effectiveness of the Settlement is conditioned on the approval of the
United States District Court for the Central District of California, and others,
of the Settlement, the Amended Plan, and other matters. In addition, there can
be no assurance that the Settlement or Amended Plan will be approved at all, or
in the proposed form.


     OTHER COMMITMENTS AND CONTINGENCIES

     On March 23, 2000, First Alliance Corporation and several of its
subsidiaries filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Central District
of California. The Company's filing is expected to facilitate the
reorganization/liquidation and sale of the Company's remaining business and
assets and operation of those assets pending any such sale. As of the date of
the Company's voluntary bankruptcy petition, the United States Bankruptcy Court
for the Central District of California assumed jurisdiction and control over the
assets of the Company. As a debtor in possession, the Company is authorized to
operate its business, subject to the supervision of the Bankruptcy Court. No
assurance can be given that the Company will remain a debtor-in-possession and
that a trustee will not be appointed to operate the Company's business. In
addition, although the Company has begun the process of formulating a plan of
reorganization/liquidation to be submitted eventually to the Bankruptcy Court,
no assurance can be given that the Bankruptcy Court will confirm the Company's
plan of reorganization/liquidation.

                                      F-28
<PAGE>

     The fact that the Company filed a voluntary bankruptcy petition may affect
the Company's ability to maintain certain present business arrangements and may
also affect the Company's ability to successfully negotiate future business
arrangements. Among the relationships that may be materially affected by the
Company's commencement of a bankruptcy case is the Company's relationship with
its warehouse financing facility lender and the Company's relationships with
other suppliers of goods and services vital to the Company's financing and
business operations.

     There is no assurance that the Company will generate enough cash flow from
its remaining servicing business, residual interests, investments, and proceeds
from asset sales to fund its existing operations or repay its debt obligations.
Management, along with its outside bankruptcy counsel, has estimated that the
overall reorganization/liquidation plan will take approximately 12 months from
December 31, 2001, subject to change depending on the outcome of certain
litigation. Management believes, however, that the Company's cash position is
adequate to fund its business operation for the next twelve months.

     In addition to cash flow from its remaining servicing business, interest on
loans and investments, and proceeds from liquidation of assets, the Company
derives a significant amount of cash flow from distribution of its residual
interests. Among other factors, the amount of residual interests distribution
may be affected by loan prepayments, delinquencies or losses. In the event of an
increase in loan prepayments, delinquencies or losses, the Company's
distribution from residual interests may be adversely affected. In addition, the
outcome of pending litigation against the Company may also threaten to reduce or
eliminate the level of residual interests distribution. Therefore, there can be
no assurance that the Company will continue to receive the same level of cash
flow from residual interests as it has in the past.

     As a result of the Bankruptcy Filing and management's intention to market
and sell the assets of the Company, the financial statement presentation has
been revised to the liquidation basis of accounting. Accordingly, the
"Consolidated Statement of Financial Condition" has been replaced with the
"Consolidated Statement of Net Assets Available for Liquidation," while the
"Consolidated Statement of Operations" has been replaced with the "Consolidated
Statement of Change in Net Assets." Liquidation basis accounting also requires
the Company to provide for all liabilities related to expenses, including
general and administrative, to be incurred during the liquidation period.
Therefore, the Company recorded and accrued an estimate of liquidation expenses
to be incurred using certain assumptions, including assumptions as to the timing
of asset disposition. There is no assurance, however, that actual liquidation
expenses will not exceed management's estimates. In the event that actual
liquidation expenses exceed management's estimates, the Company's Consolidated
Statement of Net Assets may be adversely affected.

     Liquidation basis accounting also requires assets to be valued at their
estimated net realizable value and liabilities to be estimated as amounts to be
paid in settlement of the entity's obligation. Estimated net realizable value
represents management's best estimate as to fair market value of the assets, net
of selling expenses, and without consideration to the unknown impact that the
Bankruptcy Filing or the outcome of any litigation or claims may have on the
value of the assets. Therefore, the Company has recorded a valuation adjustment
to the cost basis of certain assets and liabilities to approximate net
realizable value. There can be no assurance, however, that the Company will be
successful in selling the assets at the net realizable value which has been
recorded in the Consolidated Statement of Net Assets Available for Liquidation.
Obtaining proceeds of less than the value stated on the Company's Consolidated
Statement of Net Assets Available for Liquidation may have a material adverse
effect on the Company's Consolidated Statement of Net Assets Available for
Liquidation.

     In July 2000, the Company sold its approximately $714 million servicing
rights portfolio and agreed to a price of $7.9 million. Proceeds from such sale
are subject to certain holdback provisions totaling approximately $3.8 million
at December 31, 2001 and $4.4 million as of December 31, 2000, and which is
classified as "Restricted Cash" on the Company's Consolidated Statement of Net
Assets Available for Liquidation. The Company's ability to recover such holdback
is partially contingent on the outcome of the Company's plan of
reorganization/liquidation and claims asserted in connection therewith and thus
there can be no assurance that the Company will be able to recover the remaining
balance of "Restricted Cash."

     The Bankruptcy Filing may have triggered an event of default under various
agreements entered into by the Company, though the Company contends that they
are not, pursuant to, among other things, 11 USC ss.365(b)(2). Such agreements
include the Company's pooling and servicing agreements. However, in conjunction
with the sale of the servicing rights portfolio as mentioned above, and the


                                      F-29
<PAGE>

"Consent Agreement" entered into with the trustees and bond insurers, the
Company will have be deemed to have satisfied the events of default under the
Company's pooling and servicing agreements subject to the above mentioned
monetary holdbacks provisions contained in the agreement.

     In connection with the Bankruptcy Filing, it is management's intention to
market for sale of all or a significant portion of the remaining assets of the
Company. There can be no assurance, however, that the Company will be successful
in selling the assets at the net realizable value which has been recorded in the
Consolidated Statement of Net Assets Available for Liquidation. Obtaining
proceeds of less than the value stated on the Company's Consolidated Statement
of Net Assets Available for Liquidation may have a material adverse effect on
the Company's Consolidated Statement of Net Assets Available for Liquidation.

     The Bankruptcy Filing may have also created an event of default under the
Company's warehouse financing facility, though the Company contends that it does
not, pursuant to, among other things, 11 USC ss.365(b)(2). Notwithstanding the
pendency of the bankruptcy case, the warehouse lender may be able to exercise
its remedies under the agreement and require the Company to either repay the
entire balance outstanding on the warehouse financing facility or force the
Company to transfer ownership of the underlying loans held for sale, which are
collateralizing the loan. This may force the Company to accelerate the sale of
its loans which secure the facility at a price less favorable than otherwise
obtained, thereby having a material adverse effect on the Company's Consolidated
Statement of Net Assets Available for Liquidation.

     In addition to being a party to various legal proceedings arising out of
the ordinary course of business, the Company has also been involved with several
lawsuits which have targeted its lending practices (see "Legal Proceedings"
above). Any substantial judgment against the Company in connection therewith may
have a material adverse effect on the Company's Consolidated Statement of Net
Assets Available for Liquidation.


NOTE 10.  STOCKHOLDERS' EQUITY

     The Company's shares of Class A and Class B Common Stock are identical,
except with respect to voting rights and the right to convert Class B Common
Stock to Class A Common Stock. Holders of Class A Common Stock are entitled to
one vote for each share held of record, and holders of Class B Common Stock are
entitled to four votes for each share held of record. Each share of Class B
Common Stock is freely convertible into one share of Class A Common Stock at the
option of the Class B stockholder. In July of 1998, the majority stockholders of
FACO converted all of their Class B Common Stock into Class A Common Stock. As
of December 31, 2001, the Company did not have any Class B Common Stock
outstanding.

     In July 1996, the shareholders approved a stock incentive plan for
directors, officers and other key employees of the Company, under which
2,125,000 shares of Class A Common Stock were available for grant. Under the
plan, options vest 25% six months from the date of grant and 25% each year
thereafter until fully vested and expire on the earlier of ten years from the
date of grant or 90 days after an optionee's termination of service.

     The following is a summary of changes in the stock incentive plan during
the years ended December 31:

<TABLE>
<CAPTION>
                                        2001                               2000                              1999
                             ----------------------------     -------------------------------    ------------------------------
                                              WEIGHTED                           WEIGHTED                           WEIGHTED
                                               AVERAGE                            AVERAGE                           AVERAGE
                               NUMBER         EXERCISE           NUMBER          EXERCISE           NUMBER          EXERCISE
                              OF SHARES         PRICE          OF SHARES           PRICE          OF SHARES          PRICE
                             ------------    ------------     -------------    --------------    -------------    -------------
<S>                             <C>            <C>              <C>               <C>               <C>              <C>
Beginning of period              976,279       $ 5.58            1,997,321        $  6.04           1,011,417        $ 10.65
Grants                               ---          ---              127,105           2.40           1,298,877           3.26
Exercises                            ---          ---                  ---            ---                 ---            ---
Cancellations                   (365,557)        4.45           (1,148,147)          6.03            (312,973)          9.38
                             ------------    ------------     -------------    --------------    -------------    -------------
End of period                    610,722       $ 6.24              976,279        $  5.58           1,997,321        $  6.04
                             ============    ============     =============    ==============    =============    =============
Options Exercisable......        477,717       $ 7.12              517,494        $  6.92             633,741        $  8.76
                             ============    ============     =============    ==============    =============    =============
</TABLE>

                                      F-30
<PAGE>

     Summary information related to stock options outstanding as of December 31,
2001 is as follows:

<TABLE>
<CAPTION>
                                      OPTIONS OUTSTANDING                                         OPTIONS EXERCISABLE
 ACTUAL RANGE        ----------------------------------------------------------------   --------------------------------------
  OF EXERCISE            NUMBER           WEIGHTED-AVERAGE                                  NUMBER
 PRICES - 150%        OUTSTANDING            REMAINING            WEIGHTED-AVERAGE        EXERCISABLE       WEIGHTED-AVERAGE
   INCREMENT          AT 12/31/01         CONTRACTUAL LIFE         EXERCISE PRICE         AT 12/31/01        EXERCISE PRICE
-----------------    ---------------    ---------------------   ---------------------   ----------------   -------------------
    <S>                   <C>                   <C>                     <C>                  <C>                  <C>
    $1.66 - 1.66           10,000               8.2                     $ 1.66                 5,000              $ 1.66
    $2.50 - 3.63          345,582               7.1                       3.19               232,534                3.29
    $4.44 - 4.44           58,818               6.9                       4.44                44,111                4.44
    $7.38 - 7.38            1,000               6.7                       7.39                   750                7.38
   $11.33 -15.50          195,322               5.4                      12.42               195,322               12.42
-----------------    ---------------    ---------------------   ---------------------   ----------------   -------------------
    $1.66 -15.50          610,722               6.5                     $ 6.24               477,717              $ 7.12
=================    ===============    =====================   =====================   ================   ===================
</TABLE>

     The Company accounts for its stock incentive plan based on the intrinsic
value of a grant as of the date of the grant in accordance with Accounting
Principles Board Opinion No. 25. Accordingly, no compensation expense has been
recognized in 2001, 2000 or 1999 for options granted under the Company's stock
incentive plan. The Company believes the computation of compensation expense
based on the fair value method of accounting would have no material effect on
the Company's 2001 financial statements. Had compensation expense been
recognized in accordance with the fair value provisions of SFAS No. 123, for the
prior years, pro forma net income would have been $2.5 million in 1999, and net
income per diluted share would have been $0.14 in 1999. The fair value of each
option grant, a weighted average of $2.16 for options granted in 1999 was
estimated as of the date of grant using the Black-Scholes option pricing model.
The Company's calculations are based on a single option valuation approach and
forfeitures are recognized as they occur.

     The weighted average assumptions used for the 1999 grants are as follows:

                                                            1999
                                                     --------------------
     Dividend yield..............................            None
     Expected volatility.........................              78%
     Risk-free interest rate.....................            5.48%
     Expected lives..............................          5 years

     In April 1997, the Board of Directors approved a share repurchase program
under which the Company is authorized to purchase up to 1.5 million shares of
its Common Stock. In January 1998 and July 1998, the Board of Directors
authorized the purchase of an additional 2.0 million shares and 4.0 million
shares, respectively. The Company repurchased approximately 84,500 shares during
the first quarter of 2000 at an average price of $2.93 per share. Of the 7.5
million shares authorized, as of December 31, 2001, 2000 and 1999, the Company
had repurchased approximately 4.3 million shares, 4.3 million shares and 4.2
million shares of Common Stock, respectively.

     As partial consideration for obtaining its $150 million warehouse financing
facility, the Company granted the warehouse lender stock warrants during both
1999 and 1998. The stock warrants granted in 1998 provide the lender the option
to purchase 1% of the Company's then outstanding common stock, with an effective
date of January 15, 2001. The original effective date of the 1998 warrants was
amended in 1999 from February 15, 1999. These warrants have a ten-year exercise
period, were granted at an exercise price of $3 5/16, and were valued at $2.32
per warrant or approximately $515,000 using the Black-Scholes option pricing
model. The warehouse lender subsequently released all rights, titles and
interest that it had with respect to the 1998 warrants, and released the Company
from any obligation thereunder. The stock warrants granted in 1999 provide the
warehouse lender the option to purchase 4.9% of the Company's then outstanding
Common Stock, with an effective date of January 15, 2000. These warrants have a
ten-year exercise period, were granted at an exercise price of $2.00, and were
valued at $1.66 per warrant or approximately $1,494,000 using the Black-Scholes
pricing model. The Company has accounted for these warrants by recording the
fair value of the warrants to debt issuance costs and additional paid in
capital. Debt issuance costs were amortized over the term of the related
warehouse financing facility agreement.

                                      F-31
<PAGE>

NOTE 11.  NET INCOME PER SHARE

     A reconciliation of the numerator and denominator used in basic and diluted
net income per share are as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                                         PERIOD ENDED
                                                                        MARCH 31, 2000           1999
                                                                     ---------------------  ----------------
                                                                             (Dollars in thousands,
                                                                             except per share data)
        <S>                                                                 <C>                  <C>
        Net income (loss) (dollars in thousands):..................         $  (14,515)          $  3,828
                                                                     =====================  ================

        Weighted average number of common shares:
            Basic..................................................         17,904,223         18,110,214
            Effect of dilutive securities - stock options..........                 --             13,988
                                                                     ---------------------  ----------------
            Diluted................................................         17,904,223         18,124,202
                                                                     =====================  ================

        Net income (loss) per share:
            Basic..................................................         $    (0.81)          $   0.21
            Effect of dilutive securities - stock options..........                 --                 --
                                                                     ---------------------  ----------------
            Diluted................................................         $    (0.81)          $   0.21
                                                                     =====================  ================
</TABLE>


NOTE 12.  RELATED-PARTY TRANSACTIONS

     For the three years ended December 31, 2001, the Company entered into
transactions with the following related parties: the majority stockholder of the
Company, entities in which the majority stockholder of the Company has a
controlling interest and companies owned by family members of the majority
stockholder of the Company. The following amounts represent related-party
transactions for the years ended December 31:

<TABLE>
<CAPTION>
                                                                                       2001          2000          1999
                                                                                   ------------- ------------- -------------
                                                                                            (Dollars in thousands)
        <S>                                                                             <C>                       <C>
        Acquisition of a related company:
            Coast Security Mortgage Company, Inc..................................      $  --                     $4,000
        Loans purchased from related parties:
            Loans purchased.......................................................         --                      7,082
            Premiums paid ........................................................         --                        140
        Payments to related parties:
            Rent payments.........................................................      $  22         $ 569          506

</TABLE>

     The following amounts represent related-party balances as of December 31:
<TABLE>
<CAPTION>
                                                                                           2001         2000         1999
                                                                                         ---------    ---------     --------
                                                                                               (Dollars in thousands)
        <S>                                                                                 <C>         <C>          <C>
        Loans serviced for related parties............................................         --           --        2,209
        Notes payable due to former shareholders of Coast Security Mortgage, Inc......      $  --       $1,000       $1,000
        Accrued interest due to former shareholders of Coast Security Mortgage, Inc...         --          127           42

</TABLE>

                                      F-32
<PAGE>

NOTE 13.  FINANCIAL INSTRUMENTS

     When the Company securitized loans, it hedged its interest rate risk
related to its loans held for sale and origination commitments by selling short
or selling forward United States Treasury Securities. For accounting purposes,
selling short United States Treasury Securities is not considered to be a hedge.
Therefore, when selling short United States Treasury Securities, the Company has
recognized realized and unrealized gains and losses on hedging activities in the
period in which they occur. The Company classifies forward sales of United
States Treasury Securities as hedges of specific loans held for sale or
commitments to fund loans held for sale. The gains and losses derived from these
transactions are deferred and included in the carrying amounts of loans held for
sale and are recognized in earnings upon the sale of loans hedged. Net gains and
(losses) recognized on hedging activities were ($574,000) and $961,000 for the
years ended December 31, 2000 and 1999, respectively. The notional amount of
forward sales of United States Treasury Securities at December 31, 2000 was
$18.0 million, with a related unrealized loss of approximately $311,000. There
was no hedging activity in 2001.

     The following disclosures of the estimated fair value of financial
instruments for the years ended December 31, 2001, 2000 and 1999 are made in
accordance with the requirements of SFAS No. 107, "Disclosure About Fair Value
of Financial Instruments." The estimated fair values have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

<TABLE>
<CAPTION>
                                               -------------------------- -------------------------- --------------------------
                                                         2001                       2000                       1999
                                               -------------------------- -------------------------- --------------------------
                                                CARRYING     ESTIMATED     CARRYING     ESTIMATED     CARRYING     ESTIMATED
                                                 AMOUNT      FAIR VALUE     AMOUNT      FAIR VALUE     AMOUNT      FAIR VALUE
                                               ------------ ------------- ------------ ------------- ------------ -------------
                                                                           (Dollars in thousands)
<S>                                               <C>           <C>          <C>           <C>           <C>          <C>
Assets:
    Cash and cash equivalents.............        $ 35,290      $ 35,290     $ 21,147      $ 21,147      $15,086      $ 15,086
    Restricted cash.......................           3,346         3,346        7,118         7,118        2,648         2,648
    Loans held for sale...................          33,030        33,030       56,904        56,904       19,782        21,606
    Loans receivable held for investment..              --            --           --            --        1,521         1,521
    Residual interests....................          25,102        25,102       37,626        37,626       48,222        48,222
Liabilities:
    Warehouse financing facilities........          25,752        25,752       51,486        51,486       14,122        14,122
    Notes payable ........................           3,431         3,431        4,532         4,532        4,626         4,626

</TABLE>

     The fair value of loans is estimated based upon prices received by the
Company for loans it sells.

     The fair value of residual interests is estimated based upon discounted
cash flows.

     Rates currently available to the Company for debt with similar terms and
remaining maturities, were used to estimate the fair value of warehouse
financing facilities, other borrowings and the notes payable.

     The fair value estimates presented herein are based on pertinent
information available to management as of each year end. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these consolidated financial statements since that date and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.

     The Company is exposed to on-balance sheet credit risk to its loans
receivable and residual interests. Additionally, at December 31, 1999, the
Company had outstanding commitments to extend credit in the amount of $36
million. The Company ceased commitment to extend credit in conjunction with the
Bankruptcy Filing.

                                      F-33
<PAGE>

NOTE 14.  DOMESTIC AND FOREIGN OPERATIONS

     Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources in assessing performance. The Company has one reporting
segment with two geographical areas: United States area and United Kingdom area.

     GEOGRAPHIC AREA - During 1999, the Company operated in two geographical
areas consisting of the United States and the United Kingdom. There were no
significant transfers between geographical areas during such periods.

     The following table represents revenue and income before income tax
provisions for the years ended December 31:

                                                        -------------------
                                                               1999
                                                        -------------------
                                                      (Dollars in thousands)
        Revenue:
             United States.............................           $ 64,822
             United Kingdom............................              5,117
                                                        -------------------
                 Total.................................           $ 69,939
                                                        ===================

        Income (loss) before income tax provision:
             United States.............................           $  4,855
             United Kingdom............................              1,523
                                                        -------------------
                 Total.................................           $  6,378
                                                        ===================

     The following table represents identifiable assets of the Company as of
December 31:

                                                         ----------------
                                                              1999
                                                         ----------------
                                                           (Dollars in
                                                           thousands)
        Identifiable assets:
             United States...............................     $ 112,154
             United Kingdom (1)..........................
                                                         ----------------
                 Total...................................     $ 112,154
                                                         ================
-----------------
     (1) The Company discontinued its United Kingdom origination operation in
         1998. In 1999, the Company sold its portfolio of United Kingdom loans,
         and has completely exited the United Kingdom loan origination operation
         as of December 31, 1999.

                                      F-34
<PAGE>

<TABLE>
<CAPTION>

NOTE 15.  SELECTED QUARTERLY FINANCIAL DATA

                                                                       FIRST         SECOND        THIRD         FOURTH
        (Dollars in thousands except per share amounts)             QUARTER (1)   QUARTER (2)   QUARTER (2)   QUARTER (2)
        -------------------------------------------------------------------------------------------------------------------
        <S>                                                            <C>           <C>           <C>           <C>
        2000
             Total revenue.........................................    $  5,602            --            --            --
             Loss before income tax provision......................     (22,331)           --            --            --
             Net loss..............................................     (14,515)           --            --            --
             Comprehensive loss....................................     (14,515)           --            --            --
             Basic net loss per share..............................       (0.81)           --            --            --
             Diluted net loss per share............................       (0.81)           --            --            --

        1999
             Total revenue.........................................    $ 19,617      $ 16,455      $ 18,553      $ 15,314
             Income before income tax provision....................       3,399           972         2,441          (434)
             Net income............................................       2,039           583         1,465          (259)
             Comprehensive income..................................       1,167           195         3,480          (336)
             Basic net income per share............................        0.11          0.03          0.08         (0.01)
             Diluted net income per share..........................        0.11          0.03          0.08         (0.01)

</TABLE>

     (1)  Unaudited
     (2)  With the adoption of liquidation basis accounting effective April 1,
          2000, the selected quarterly financial data is no longer applicable.

                                      F-35
<PAGE>

                                     PART IV


ITEM 14.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, REPORTS ON FORM 8-K

(a)  1.  Independent Auditors' Report                                        F-1
        Financial Statements:
            Consolidated Statement of Net Assets Available for Liquidation
                 as of December 31, 2001.................................... F-2
            Consolidated Statement of Net Assets Available for Liquidation
                 as of December 31, 2000.................................... F-3
            Consolidated Statement of Financial Condition
                 as of March 31, 2000....................................... F-4
            Consolidated Statement of Change in Net Assets
                 for the year ended December 31, 2001....................... F-5
            Consolidated Statement of Change in Net Assets
                 for the period of April 1, 2000 through December 31, 2000.. F-6
            Consolidated Statement of Operations
                 for the three month period ended March 31, 2000............ F-7
            Consolidated Statement of Operations
                 for the year ended December 31, 1999....................... F-8
            Consolidated Statement of Comprehensive Loss
                 for the three month period ended March 31, 2000............ F-9
            Consolidated Statement of Comprehensive Income
                 for the year ended December 31, 1999.......................F-10
            Consolidated Statement of Stockholders' Equity
                 for the three months ended March 31, 2000..................F-11
            Consolidated Statement of Stockholders' Equity
                 for the year ended December 31, 1999.......................F-12
            Consolidated Statement of Cash Flows
                 for the three months ended March 31, 2000..................F-13
            Consolidated Statement of Cash Flows
                 for the year ended December 31, 1999.......................F-15
            Notes to Consolidated Financial Statements .....................F-17
      2.  Financial Statement Schedules:
            None Required
      3.  Exhibits

EXHIBIT
    NO.                               DESCRIPTION OF EXHIBIT
    ---                               ----------------------

3.1     Amended Certificate of Incorporation of the Company (Incorporated by
        reference to Exhibit 3.1 to the Company's Registration Statement on Form
        S-1, Commission File No. 333-3633)
3.2     Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to the
        Company's Registration Statement on Form S-1, Commission File No.
        333-3633)
4.1     1996 Stock Incentive Plan (Incorporated by reference to Exhibit 4.1 to
        the Company's Registration Statement on Form S-1, Commission File No.
        333-3633)
4.1.1   Form of Incentive Stock Option Agreement for use with 1996 Stock
        Incentive Plan (Incorporated by reference to Exhibit 4.1.1 to the
        Company's Annual Report on Form 10-K for the year ended December 31,
        1996, Commission File No. 0-28706)
4.1.2   Form of Non-qualified Stock Option Agreement for use with 1996 Stock
        Incentive Plan (Incorporated by reference to Exhibit 4.1.2 to the
        Company's Annual Report on Form 10-K for the year ended December 31,
        1996, Commission File No. 0-28706)

<PAGE>

EXHIBIT
    NO.                           DESCRIPTION OF EXHIBIT
    ---                           ----------------------

10.1    Warehouse Financing Facility dated October 29, 1993 (Incorporated by
        reference to Exhibit 10.1 to the Company's Registration Statement on
        Form S-1, Commission File No. 333-3633)
10.2    Form of Pooling and Servicing Agreement (Incorporated by reference to
        Exhibit 10.2 to the Company's Registration Statement on Form S-1,
        Commission File No. 333-3633)
10.3    Corporate Headquarters Lease (Incorporated by reference to Exhibit 10.3
        to the Company's Registration Statement on Form S-1, Commission File No.
        333-3633)
10.4    S Distribution Notes (Incorporated by reference to Exhibit 10.4 to the
        Company's Registration Statement on Form S-1, Commission File No.
        333-3633)
10.5    Mason Employment Agreement (Incorporated by reference to Exhibit 10.5 to
        the Company's Registration Statement on Form S-1, Commission File No.
        333-3633)
10.5.1  Mason Loan (Incorporated by reference to Exhibit 10.5.1 of the Company's
        Annual Report on Form 10-K for the year ended December 31, 1996,
        Commission File No. 0-28706)
10.6    Form of Directors' and Officers' Indemnity Agreement (Incorporated by
        reference to Exhibit 10.7 to the Company's Registration Statement on
        Form S-1, Commission File No. 333-3633)
10.7    Master Repurchase Agreement dated as of October 31, 1997 between
        Nationscapital Mortgage Corporation and the Company (Incorporated by
        reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K
        for the year ended December 31, 1997, Commission File No. 0-28706)
10.8    Master Repurchase Agreement dated as of October 31, 1997 between Coast
        Security Mortgage Inc. and the Company (Incorporated by reference to
        Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year
        ended December 31, 1997, Commission File No. 0-28706)
10.9    Chisick Employment Agreement (Incorporated by reference to Exhibit 10.10
        to the Company's Registration Statement on Form S-1, Commission File No.
        333-3633)
10.10   Reimbursement Agreement (Incorporated by reference to Exhibit 10.11 to
        the Company's Registration Statement on Form S-1, Commission File No.
        333-3633)
10.11   Warehouse Financing Facility dated September 5, 1996 (Incorporated by
        reference to Exhibit 10.12 to the Company's Quarterly Report on Form
        10-Q for the period ended September 30, 1996, Commission File No.
        0-28706)
10.12   Interim Warehouse and Security Agreement dated as of February 15, 1997
        between Nationscapital Mortgage Corporation and the Company
        (Incorporated by reference to Exhibit 10.12 to the Company's Quarterly
        Report on Form 10-Q for the period ended March 31, 1997, Commission File
        No. 0-28706)
10.13   Interim Warehouse and Security Agreement dated as of February 15, 1997
        between Coast Security Mortgage Inc. and the Company (Incorporated by
        reference to Exhibit 10.13 to the Company's Quarterly Report on Form
        10-Q for the period ended March 31, 1997, Commission File No. 0-28706)
10.14   Smith Loan (Incorporated by reference to Exhibit 10.14 to the Company's
        Quarterly Report on Form 10-Q for the period ended March 31, 1997,
        Commission File No. 0-28706)
10.15   Building Purchase and Sale Agreement between Amresco Residential
        Mortgage Corporation and the Company (Incorporated by reference to
        Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the
        period ended September 30, 1997, Commission File No. 0-28706)
10.16   (pound)25,000,000 Warehouse Credit Facility Agreement dated August 18,
        1997 between Prudential Securities Credit Corporation and the Company
        (Incorporated by reference to Exhibit 10.16 to the Company's Quarterly
        Report on Form 10-Q for the period ended September 30, 1997, Commission
        File No. 0-28706)
10.17   Master Repurchase Agreement dated as of October 27, 1997 between First
        Union National Bank and the Company (Incorporated by reference to
        Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year
        ended December 31, 1997, Commission File No. 0-28706)
10.18   Amendment to Warehouse Credit Facility Agreement dated August 18, 1997
        between Prudential Securities Credit Corporation and the Company
        (Incorporated by reference to Exhibit 10.18 to the Company's Quarterly
        Report on Form 10-Q for the period ended March 30, 1998, Commission File
        No. 0-28706)
10.19   Master Repurchase Agreement dated as of December 30, 1998 between Lehman
        Commercial Paper Inc. and the Company (Incorporated by reference to
        Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year
        ended December 31, 1998, Commission File No. 0-28706)

<PAGE>

EXHIBIT
    NO.                           DESCRIPTION OF EXHIBIT
    ---                           ----------------------

10.20   Deed of Trust Note dated as of February 19, 1999 between the Ohio
        National Life Insurance Company and the Company (Incorporated by
        reference to Exhibit 10.20 to the Company's Quarterly Report on Form
        10-Q for the period ended March 31, 1999, Commission File No. 0-28706)
10.21   Servicing Rights Purchase Agreement dated July 1, 2000 between Ocwen
        Federal Bank FSB and the Company (Incorporated by reference to Exhibit
        10.21 to the Company's Quarterly Report on Form 10-Q for the period
        ended September 30, 2000, Commission File No. 0-28706)
10.22   Consent Agreement dated July 14, 2000 between Wells Fargo Bank,
        Minnesota, National Association, The Chase Manhattan Bank, The Bank of
        New York, MBIA Insurance Corporation, Ocwen Federal Bank FSB, and the
        Company (Incorporated by reference to Exhibit 10.21 to the Company's
        Quarterly Report on Form 10-Q for the period ended September 30, 2000,
        Commission File No. 0-28706)
21      Subsidiaries of the Registrant *
----------------
* Filed herewith

       (a) Reports on Form 8-K:
           (1)   A current report on Form 8-K was filed on April 18, 2001 by
                 First Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had filed its March
                 Monthly Operating Reports as required to be filed with the
                 Bankruptcy Court and Office of the United States Trustee.
           (2)   A current report on Form 8-K was filed on May 16, 2001 by First
                 Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had filed its April
                 Monthly Operating Reports as required to be filed with the
                 Bankruptcy Court and Office of the United States Trustee.
           (3)   A current report on Form 8-K was filed on June 19, 2001 by
                 First Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had filed its May Monthly
                 Operating Reports as required to be filed with the Bankruptcy
                 Court and Office of the United States Trustee.
           (4)   A current report on Form 8-K was filed on July 16, 2001 by
                 First Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had filed its June
                 Monthly Operating Reports as required to be filed with the
                 Bankruptcy Court and Office of the United States Trustee.
           (5)   A current report on From 8-K was filed on July 18, 2001 by
                 First Alliance Corporation. Under Item 5, "Other Events,"
                 First Alliance Corporation reported that it had filed a
                 Debtor's Joint and Consolidated Plan of Reorganization in U.S.
                 Bankruptcy Court.
           (6)   A current report on Form 8-K was filed on August 15, 2001 by
                 First Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had filed its July
                 Monthly Operating Reports as required to be filed with the
                 Bankruptcy Court and Office of the United States Trustee.
           (7)   A current report on Form 8-K was filed on September 19, 2001 by
                 First Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had filed its August
                 Monthly Operating Reports as required to be filed with the
                 Bankruptcy Court and Office of the United States Trustee.
           (8)   A current report on Form 8-K was filed on October 10, 2001 by
                 First Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had filed its September
                 Monthly Operating Reports as required to be filed with the
                 Bankruptcy Court and Office of the United States Trustee.
           (9)   A current report on Form 8-K was filed on November 15, 2001 by
                 First Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had filed its October
                 Monthly Operating Reports as required to be filed with the
                 Bankruptcy Court and Office of the United States Trustee.
           (10)  A current report on Form 8-K was filed on December 14, 2001 by
                 First Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had filed its November
                 Monthly Operating Reports as required to be filed with the
                 Bankruptcy Court and Office of the United States Trustee.
<PAGE>

           (11)  A current report on Form 8-K was filed on January 14, 2002 by
                 First Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had filed its December
                 Monthly Operating Reports as required to be filed with the
                 Bankruptcy Court and Office of the United States Trustee.
           (12)  A current report on Form 8-K was filed on February 15, 2002 by
                 First Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had filed its January
                 Monthly Operating Reports as required to be filed with the
                 Bankruptcy Court and Office of the United States Trustee.
           (13)  A current report on Form 8-K was filed on March 20, 2002 by
                 First Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had filed its February
                 Monthly Operating Reports as required to be filed with the
                 Bankruptcy Court and Office of the United States Trustee.
           (14)  A current report on Form 8-K was filed on March 25, 2002 by
                 First Alliance Corporation. Under Item 5. "Other Events," First
                 Alliance Corporation reported that it had reached a proposed
                 settlement of claims and would file an Amended Debtor's Joint
                 and Consolidated Plan of Reorganization in the United States
                 Bankruptcy Court, Santa Ana, for the Central District of
                 California.

<PAGE>

                                   SIGNATURES


       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Date:     April 16, 2002
        -------------------
                                                     FIRST ALLIANCE CORPORATION

                                                     By:    /S/ BRIAN CHISICK
                                                         -----------------------
                                                              Brian Chisick
                                                              Chairman and
                                                         Chief Executive Officer

       Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on date indicated.

<TABLE>
<CAPTION>

        SIGNATURE                               TITLE                                    DATE
        ---------                               -----                                    ----


<S>                          <C>                                                   <C>
    /S/ BRIAN CHISICK        Chairman and Chief Executive Officer, Director        April 16, 2002
-------------------------    PRINCIPAL EXECUTIVE OFFICER
      Brian Chisick


    /S/ JOEL BLITZMAN        Vice President and Controller                         April 16, 2002
-------------------------    PRINCIPAL ACCOUNTING OFFICER
      Joel Blitzman


   /S/ MERRILL BUTLER        Director                                              April 16, 2002
-------------------------
     Merrill Butler


    /S/ THOMAS TARTER        Director                                              April 16, 2002
-------------------------
      Thomas Tarter

</TABLE>